UPDATE 2-Itaú to buy Citigroup consumer finance business in Brazil

Tue May 14, 2013 7:51pm EDT

* Itaú trumped Bradesco, Santander in race for unit

* Citigroup expects to book $300 mln after-tax gain

* Comes as Itaú seeks to growth in consumer finance

SAO PAULO, May 14 (Reuters) - Itaú Unibanco Holding SA will take over Citigroup Inc's Brazilian consumer finance units for 2.77 billion reais ($1.37 billion), as the nation's biggest bank by market value expands more rapidly in the local credit card market.

Under the terms of the deal, Itaú will take over Banco Citicard SA and Citifinancial Promotora Ltda, as well as the Credicard card brand that serves more than 4.8 million clients, according to a securities filing on Tuesday. The unit has about 8 billion reais in assets, the filing said.

With the purchase, Credicard returns to Itaú, which was Citigroup's partner in the company until 2006. The transaction is subject to regulatory approval.

The transaction also gives Itaú an edge in the card market in Brazil, where more than 40 million people have in the past decade joined the ranks of the middle class and increasingly using financial products. With the Credicard purchase, Itaú's credit card base will rise to 37.7 million from 32.8 million at the end of last month, the bank said.

On the other hand, the sale allows Citigroup to make progress toward a longstanding plan to exit non-core businesses in some key markets.

"We are strengthening our leadership in the consumer finance and credit card markets in which we have an ample portfolio of products and services and specialized platforms," Itaú Chief Executive Officer Roberto Egydio Setubal was quoted as saying in the filing.

The bank is focusing on fee-related activities to try to stem a decline in revenue from loans in the face of an abrupt decline in interest rates, two years of sub-par economic growth and rising leverage among some consumers. Last year, Itaú took control of the 49 percent it did not own of redecard SA, Brazil's No. 2 card payment processor, for about 10.5 billion reais, seeking to boost revenue from the segment.

Itaú trumped Banco Santander Brasil SA and Banco Bradesco SA, which sources recently told Reuters were in the race for Credicard. Under the terms of the transaction, Itaú will be allowed to book earnings from Credicard operations from Jan. 1, the filing said.

The sale of Credicard is expected to generate an after-tax gain for Citigroup of about $300 million, the New York-based bank said in a statement. Citigroup's retail banking business in Brazil will not be affected by the sale of Credicard, the same statement added.

Itaú shares rose 1.5 percent to 34.52 reais on Tuesday, extending gains so far this year to 5.2 percent.

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