Citigroup Inc.’s plan to shift bad loans to a new division from its U.S. consumer-finance business will make the remaining network profitable, said Mary McDowell, chief executive officer of the CitiFinancial unit.
The “streamlined” branch network will serve 1.6 million customers and manage $18 billion of loans and other receivables, or about 70 percent of the current total, McDowell told employees on a June 1 conference call. The network will be profitable when excluding losses on $8 billion of receivables being moved to a new CitiFinancial division specializing in loan modifications, she said.
Citigroup is carving up CitiFinancial to attract buyers 17 months after CEO Vikram Pandit, 53, tagged it for sale. While results for the Baltimore-based unit aren’t disclosed, it is part of Citigroup’s local consumer-lending group, which lost $10.5 billion last year. Citigroup said June 1 that CitiFinancial also will close 330 U.S. branches and cut 500 to 600 jobs under the strategy.
“That clear line of sight to profitability, it’s an important feature for potential buyers,” McDowell said on the call. “Once this strategy has been fully implemented, the full-service branch network will immediately return to profitability.”
Citigroup spokeswoman Shannon Bell declined to comment further.
CitiFinancial North America, which also includes branches in Canada and Puerto Rico, may be worth $3.6 billion once the delinquent loans are pushed out, Rochdale Securities analyst Richard Bove wrote in a report yesterday. Citigroup has already written down many of the loans, Bove said.
‘Make It Attractive’
“What you’re trying to do is sell whatever you can sell,” Bove said in an interview. “If you kept the bad loans inside CitiFinancial, you couldn’t sell CitiFinancial. So you had to take it out, restructure the business, make it attractive.”
McDowell said on the call that while “there’s been a lot of interest in our business from potential buyers,” few companies can afford to carry a balance sheet as large as CitiFinancial’s. New York-based Citigroup funds the business mainly from its $1.02 billion of non-deposit borrowings, which come from debt markets and other institutional lenders.
“One of the things we consistently hear is that our business is too large,” McDowell said. Shrinking the unit “increases the pool of potential buyers.”
A plan to rename CitiFinancial with an “independent brand name” may also make it more appealing, she said. The rebranding, which probably won’t be completed until early next year, will reflect the eventual separation from Citigroup, she said.
“By addressing this proactively rather than waiting for someone else to do something when we’re sold, I think we increase the value of the franchise,” she said.
Pandit is “not going to sell it if the price isn’t right,” McDowell said.