FRANKFURT/NEW YORK Citigroup Inc (C.N), the largest U.S. bank, said on Friday that it was selling its German consumer banking unit to France's Credit Mutuel Group for close to $8 billion to shore up capital.
Credit Mutuel will pay 4.9 billion euros ($7.8 billion) in cash plus the German unit's earnings accrued in 2008 through the closing, which is expected in the fourth quarter.
The sale is part of Citigroup Chief Executive Vikram Pandit's plan to dispose of $400 billion of assets after losses piled up from subprime mortgages and other risky debt.
Citigroup has suffered more than $46 billion of credit losses and write-downs since the middle of 2007. It is expected next Friday to post its third straight quarterly loss, after losing close to $15 billion in the prior two quarters.
"Pandit is trying to get rid of noncore assets, and the sale serves his purpose of raising needed capital," said Chris Hagedorn, who helps invest $21.4 billion at Fifth Third Asset Management in Cincinnati, including in Citigroup stock. "It's a multiyear objective, and there's still a lot to be done."
The German consumer business, known as Citibank, has a market share of nearly 7 percent. Its 6,800 employees serve about 3.25 million customers and operate 340 branches.
It made its money by lending for everything from televisions to cars, and also has a credit card business and an arm that provides investment advice to wealthy customers. The unit had net income of 365 million euros in 2007, down 16 percent from the previous year. Citigroup's roots in Germany go back to 1926.
"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," Pandit said in a statement.
BRANCHING BEYOND FRANCE
The purchase is Credit Mutuel's largest ever.
It allows the French bank to expand beyond its main mortgage specialty to grab a predominantly consumer lending business in Europe's biggest economy. Credit Mutuel had already been branching out into Luxembourg and Switzerland.
Deutsche Bank AG (DBKGn.DE), which is seeking to beef up its retail business to offset weakness in its depressed investment bank, had also bid for the German unit.
Standard & Poor's said it might downgrade Credit Mutuel's high investment-grade ratings. It called the transaction "a clear departure from the company's previously domestic-oriented growth strategy" that could weigh significantly on its capitalization.
Citigroup expects a $4 billion after-tax gain from the sale, which will boost its Tier-1 capital ratio, a measure of its ability to cover losses, by 0.6 of a percentage point.
The bank had already raised more than $40 billion of capital since late last year.
Citigroup was advised on the sale by its own bankers, while Lehman Brothers Inc worked with Credit Mutuel.
Shares of Citigroup closed Thursday at $16.28. They began the year at $29.44.
(1 euro = US $1.585)
(Additional reporting by Sudip Kargupta in Paris and Mathieu Robbins in London; Editing by David Cowell, Erica Billingham and Lisa Von Ahn)