Exclusive: Fortress, others eye Citi's OneMain consumer finance unit
NEW YORK (Reuters) - Citigroup Inc (C.N) has been approached by Fortress Investment Group LLC (FIG.N) and some other private equity firms about a potential deal for its consumer finance business, OneMain Financial, according to two people familiar with the situation.
The bank has not made a decision yet about whether to sell the business, which makes personal loans through a network of about 1,100 branches, one of the sources said.
OneMain is part of Citi Holdings, which Citigroup created during the financial crisis to park assets it wanted to eventually divest or wind down.
The nature of the private equity firms' proposals and the timing and status of these conversations could not be learned, but the sources said a deal could come together this year.
A Citigroup spokesman declined to comment. Fortress, majority owner of consumer finance company Springleaf Holdings Inc (LEAF.N), did not respond to requests for comment. Springleaf declined to comment.
The identity of the other private equity firms interested in OneMain could not be learned.
In December, Citigroup Chief Financial Officer John Gerspach said at an industry conference that while the business was profitable it did not fit with the bank's target audience. The bank has been focusing on wealthier customers, while OneMain caters to lower-income people.
"We continue to evaluate all options for exiting OneMain," Gerspach said at the time.
Selling OneMain would allow Citigroup to winnow Citi Holdings even further. After chipping away at it over the past few years, the bank had reduced the assets in the unit to $117 billion at the end of the fourth quarter, from a peak of more than $875 billion.
Still, a deal for OneMain presents a dilemma for the bank. Gerspach said at the December conference that OneMain generated U.S. taxable income but he was not specific, and Citigroup does not disclose its income statement.
Citigroup needs U.S. income to use some of its $53 billion of tax credits and deductions, known as deferred tax assets, that it mainly accumulated from losses and foreign tax payments during and after the financial crisis.
In June last year, analysts estimated realizing these benefits over time could be worth some $27 billion, or $9 per share, to Citigroup. <ID: nL2N0ET11X>
The sources said one option is for the bank to sell a minority stake in the unit, which would allow it to retain some of the earnings stream from the operation.
The bank has tried to sell OneMain, which was formerly called CitiFinancial, before. Sources told Reuters in 2011 that the bank was talking to several private equity firms that were attracted to consumer finance assets about a deal.
Companies such as OneMain give out personal loans to people to meet unexpected expenses like medical bills or car repairs, and to buy small-ticket items such as refrigerators and televisions. OneMain gives personal loans up to $15,000.
As major banks have pulled back from riskier lending such as these kinds of personal loans in the aftermath of the financial crisis, some buyout shops have seen an opportunity to fill the void. They bet that such lending will grow as the economy recovered - a wager that has been paying off in at least some cases.
Fortress bought a majority stake in American International Group Inc's (AIG.N) consumer finance business during the crisis and renamed it Springleaf. In mid-October, it took Springleaf public and has seen the company's shares rise around 30 percent.
One of the sources said the logic of combining Springleaf with OneMain has been apparent to top financiers for years. Former AIG Chief Executive Maurice "Hank" Greenberg and former Citigroup CEO Sanford "Sandy" Weill spoke about the possibility when they ran the respective companies more than a decade ago.
Weil and Greenberg could not be immediately reached for comment.
A sale of OneMain would mark the end of an important chapter in Citigroup's history. At its core, OneMain is the old Commercial Credit business, which in the mid-1980s named Weill as its CEO. Weill used Commercial Credit to acquire lenders, brokers, and insurers to create what became Citigroup.
Citigroup's 2011 attempt to sell OneMain failed because financial buyers, who did not have access to cheap deposit funding, could not find a way to raise enough money in capital markets to fund the purchase.
Sources said at the time that Citigroup wanted at least book value for the business, which was around $2 billion. But any buyer would have needed to raise billions more to finance the unit's roughly $13 billion of assets at the time. It now has about $9 billion in assets, though its current book value could not be ascertained.
The bank tried to structure a deal by offering to keep a minority stake and helping to arrange at least part of the financing needed for the transaction.
But in the end it decided against selling because of difficult financing markets as well as the attraction of retaining U.S. earnings for tax reasons, one of the sources said.
The source said that the bank did not foresee funding to be a problem in the markets now.
(Additional reporting by David Henry and Dan Wilchins; Edited by Martin Howell)