DEALTALK-For Citigroup, asset sales likely to be difficult
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NEW YORK Jan 12 (Reuters) - Citigroup Inc (C.N) may explore further asset sales after divesting its Smith Barney retail brokerage unit to Morgan Stanley (MS.N), but the banking giant is likely to have a tough time finding buyers.
Chief Executive Vikram Pandit is trying to shed hundreds of billions of dollars of assets and reduce risk after Citigroup suffered $20.3 billion of losses in the year ended Sept. 30. The bank is expected to post another loss for the 2008 fourth quarter when it reports results this month.
Citigroup has considered selling its Banamex Mexican banking unit and Primerica Financial Services, people close to the matter have said. The Wall Street Journal reported on Monday that CitiFinancial, international retail-brokerage operations and the private-label credit-card businesses may also be put on the block. The bank declined to comment.
But Citigroup may not find it easy to sell other assets, and like insurer American International Group Inc (AIG.N), it could run into problems disposing of units amid the financial crisis, investment bankers said. Few would-be buyers have enough cash, stocks are down, financing is not easily available, and the quality of financial assets is often suspect.
"They may quietly explore what's available. I just don't think that they can do very many deals in the near-term," said Marshall Sonenshine, chairman of New York-based investment bank Sonenshine Partners. "But over the next couple of years, they will sell a lot of those businesses, and so will AIG."
Citigroup tried to sell life insurance unit Primerica over the summer, but its plans were set back as the financial crisis took over.
Selling consumer lending businesses such as private label credit cards and CitiFinancial, which provides loans for home improvement, debt consolidation and tuition, is also likely to prove difficult in an economic downturn as consumers suffer.
In September, General Electric Co (GE.N) shelved plans to sell its $30 billion U.S. private-label credit card business, saying it was a challenging time to find someone who wanted to take responsibility for more than $30 billion of assets.
"Anything that has credit sensitivity to it, like a credit card business in this market -- Citi will be crazy to try to sell something like that," a financial services investment banker said.
"There are no strategic buyers, no financial buyers. There's no leverage," the banker said. "You are going to sell an asset that has consumer credit risk to it? Good luck."
AT WHAT PRICE?
Still, as it faces pressure to put its house in order, Citigroup may want to try, and some of its assets could lure potential buyers. But the bank will then have to deal with the problem of negotiating a good price.
"Someone's going to be interested in them at a certain price -- maybe an unappealing price to Citi's shareholders," another financial services investment banker said. "They may not get the prices they want, but you can sell things."
In some cases, uncertainty about asset quality can be addressed by a deal's structuring.
The agreement for the sale of Chevy Chase Bank to Capital One Financial Corp (COF.N) has a clause that would have Capital One pay more if the acquired bank's assets perform better than expected.
So questions about the quality of Citigroup's private-label credit card portfolio in a declining economy, for instance, could potentially be addressed by structuring a transaction where payments are made over time, with the amount depending on defaults, the banker said.
"Whether Citigroup will be better off accepting prices today or deferring sales remains to be seen," Sonenshine said. "In both cases, AIG and Citi, we are looking at the slow but inevitable disaggregation of overextended financial services companies that have demonstrated an inability to manage risk." (Additional reporting by Dan Wilchins; editing by John Wallace) (For more M&A news and our DealZone blog, go to www.reuters.com/deals)