Citi Sells Unit to Credit Mutuel for EU4.9 Billion (Update1)
By Aaron Kirchfeld and Jacqueline Simmons
July 11 (Bloomberg) -- Citigroup Inc., the largest U.S. bank, agreed to sell its German consumer unit to France's Credit Mutuel Group for 4.9 billion euros ($7.7 billion) to shore up capital.
The Paris-based customer-owned bank will pay the amount in cash as well as earnings accrued in 2008 for Citibank Privatkunden AG, New York-based Citigroup said in a Business Wire statement today. The sale will be completed in the fourth quarter. The French company beat out Deutsche Bank AG, Germany's biggest bank, the other remaining bidder.
Citigroup, reeling from losses on subprime-infected assets, sold the Dusseldorf-based unit as Chief Executive Officer Vikram Pandit disposes of $400 billion of assets. Credit Mutuel, France's second-largest bank by branches, gains the market leader for consumer loans in Germany with 340 branches and about 3.2 million clients.
``Citibank gives the French lender a great foothold in the German retail market,'' said Konrad Becker, a Munich-based analyst at Merck Finck & Co. ``Now Deutsche Bank will have to concentrate on getting Postbank.''
The sale of Citibank may be the first in a wave of takeovers in Germany. Deutsche Postbank AG, Germany's biggest consumer bank by clients, and Allianz SE's Dresdner Bank are also up for sale, opening the door for competitors to gain a bigger slice of the German market, which is still dominated by state-owned lenders.
`Tooth-and-Claw' Competition
Takeovers would shake up financial services in a market where ``tooth-and-claw'' competition has sapped profitability, Citigroup analysts said in a February report. Germany's five biggest private banks together hold 12 percent of the nation's 1 trillion-euro consumer lending market, Bundesbank data show.
The sale of Citibank will result in an after-tax gain of about $4 billion and increase Citigroup's tier 1 capital ratio, a measure of capital strength, by about 60 basis points as of March 31, the company said. Citibank had net income last year of 365 million euros, a 16 percent decrease from 2006. Return on equity, a measure of profitability, was 50 percent last year.
``This is another strategic step in our effort to reorganize Citi, strengthen our balance sheet, and put us squarely on the path to future growth driven by our core businesses,'' Pandit said in the statement.
Selling Assets
Pandit is selling assets after booking $43 billion of credit losses and writedowns since the subprime mortgage market collapsed last year.
In Germany, Credit Mutuel currently has a stake in CardProcess, a provider of electronic payment services for cooperative banks, according to the company's 2006 annual report. The bank currently has more than 5,000 branches under its Credit Mutuel and CIC brands, second to Credit Agricole SA in France.
Credit Mutuel's 2007 net income declined 7.3 percent to 2.7 billion euros because of about 300 million euros of provisions tied to the U.S. subprime mortgage market collapse, according to figures from the company's Web site. Credit Mutuel employs about 59,450 people in France.
About 10 domestic and foreign banks submitted initial bids for Citibank by June 4, people told Bloomberg News. Citigroup then narrowed the list of bidders for its German consumer lending unit to include Deutsche Bank and Credit Mutuel
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