Yahoo Finance Citigroup (C) Closes Bahrain Consumer Banking Business Sale
Citigroup Inc. C closed the sale of its Bahrain consumer business to Ahli United Bank B.S.C. The deal includes Citigroup’s retail banking, credit card and unsecured lending businesses but excludes institutional businesses.
The transaction, announced in early April, is anticipated to result in a regulatory capital benefit of $40 million to C.
The sale of the bank’s Bahrain consumer business is among the 14 consumer market exits in Asia, Europe, the Middle East and Mexico as part of its strategy refresh. Since the strategic refresh was announced in April 2021, the company has signed sale agreements in nine markets and exited consumer business in five markets, including Australia, the Philippines, Thailand, Malaysia and Bahrain. This aside, Citigroup is in the process of winding down consumer banking operations in South Korea and Russia.
On Nov 1, Citigroup closed the sale of its Malaysia and Thailand retail banking and consumer credit card businesses to United Overseas Bank Limited’s subsidiaries.The sale is expected to result in a regulatory capital benefit of $1 billion.
Such exits will free up capital and help the company pursue investments in wealth-management operations in Singapore, Hong Kong, the UAE and London to stoke growth. Citigroup anticipates the release of $12 billion (in aggregate) of allocated tangible common equity over time from such market exits. The efforts will likely help augment its profitability and efficiency over the long term.
The company’s exit from the global consumer banking space will help it focus on strategic businesses such as wealth management businesses in affluent markets of Singapore, Hong Kong, the UAE and London. The improved business mix toward higher-returning businesses will grow fee revenues across the ICG segment and carve the path to realize the RoTCE goal of 11-12% over the next three to five years.
However, such a dramatic repositioning might result in a bleak near-term outlook, with noise from divestitures, higher expenses, and shortfalls in revenues and earnings.
Markedly, Citigroup is expecting to increase its "investment in transformation" spend to $3-$3.5 billion in 2022 from $1.7 billion reported in 2021. The investments relate to consent orders and technology upgrades, among others. Hence, as Citigroup continues to work through its legacy legal issues, we believe that the company will witness elevated regulatory expenses and litigation provisions, which will likely hurt its financials in the near term.
Shares of this Zacks Rank #3 (Hold) company have lost 8.8% over the past six months against the industry’s growth of 0.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Inorganic Growth Efforts by Other Firms
Of late, banks have been thriving to expand through acquisitions amid a challenging operating environment. Washington Federal, Inc. WAFD announced its plan to enter the lucrative and “fast-growing” California market. The company signed an agreement to acquire Luther Burbank Corporation LBC and its wholly-owned subsidiary, Luther Burbank Savings, for $654 million.
Washington Federal is expected to use the deal as “a platform for growth in attractive California markets.” The company intends to enhance multi-family loan origination capabilities and expand commercial banking activities to Northern and Southern California. At present, LBC operates in California, Washington and Oregon through 11 full-service branches and seven loan production offices.
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