UPDATE 2-Citi sells more branches in Texas to BB&T

Wed Sep 3, 2014 3:09pm EDT

(Adds comments from BB&T CEO, additional information on Citigroup's strategy; updates share prices)

Sept 3 (Reuters) - Citigroup Inc agreed to sell another 41 branches in Texas to BB&T Corp as the third-largest U.S. bank cuts back on brick-and-mortar outlets and focuses on online banking.

The disposal follows the sale of 21 branches in the state to BB&T in December. Citi also sold its retail banking and credit card business in Spain to Banco Popular in June and, according to a source, is now seeking a buyer for its Japanese retail banking operations.

The latest sale includes retail branches in Dallas, Houston and Midland that had $2.3 billion in deposits and $87 million in loans. Dallas and Houston were among the cities that Citigroup listed in November as being part of its strategy to focus on doing business in the world's 150 top urban areas.

Citi said on Wednesday its branch network in Texas did not provide the scale to capture future growth and market share in traditional retail banking.

The company will continue to offer credit cards and mortgage loans to individuals in Dallas and Houston online but not through branches, a spokesman said. It will also continue to take deposits in Texas from businesses and wealthy people, but not from retail consumers.

Citi, led by Michael Corbat, has been seeking buyers for about 50 branches holding $3 billion of deposits in California, Bloomberg reported in April.

The company's retail banking business has been struggling. Income from continuing operations at the unit fell 46 percent in the second quarter. Revenue from the business accounts for nearly a quarter of total revenue.

The bank had 3,463 branches in 35 countries as of June 30, with a little over a third of them in North America, according to a filing.

For BB&T, the latest purchase will boost its total branches in Texas to 123 with $5.3 billion of deposits and will make the company the 13th largest bank in the state, Chief Executive Officer Kelly King told Reuters. BB&T has set a goal of being a top-five bank in Texas but had been focusing in the past few years on boosting its commercial operation.

"What this does is move us to where we can effectively play in the retail space," King said.

BB&T said it would pay a premium to book value of about 5.3 percent of total deposits.

Citi said the sale was not material to its earnings and that it would continue its other businesses in Texas.

Deutsche Bank Securities was financial adviser and Wachtell, Lipton, Rosen & Katz provided legal counsel to BB&T for the deal.

Citi's shares, which have gained about 6 percent in the past year, were up 0.3 percent at $52.11 on the New York Stock Exchange on Wednesday afternoon. BB&T's shares were down 0.2 percent at $37.46 in afternoon trading. (Reporting by Anil D'Silva, David Henry and Peter Rudegeair; Editing by Saumyadeb Chakrabarty and Cynthia Osterman)

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