Citi Offloads Shanghai Bank Stake

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Citigroup Inc. (C) has offloaded its 2.71% equity stake in Shanghai Pudong Development Bank (“SPDB”) for an after-tax gain of around $349 million. The stake sale was made though block trade to institutional investors.

The two companies have, however, made strategic arrangement to cooperate with each other. Both the companies are discussing a number of mutual initiatives, including Citi’s global network and credit lines utilization to aid SPDB in expanding internationally in future.

This sale follows Citi’s recent offloading of its entire 9.85% stake in Housing Development Finance Corporation Ltd. (:HDFC) in India for an after-tax gain of approximately $722 million. Notably, HDFC is a premier housing finance company of India and the promoter of HDFC Bank Limited (HDB), one of the largest banks in India.

We think the stake sale is part of Citi’s ongoing capital planning efforts. Banks need to boost up their capital levels to encounter any financial crisis and satisfy global banking rules.

Moreover, Citi has recently won approval for launching its own card business in the country. Citi's Chinese subsidiary Citibank (China) Co. Ltd. received approval from the China Banking Regulatory Commission to launch its own credit card business in that country. The company will launch both retail and commercial cards before the end of this year. This marks a landmark for Citi, the first U.S.-based bank to introduce its own credit card in China.

Furthermore, Citi’s securities joint venture (:JV) in China with Shanghai-based Orient Securities Co. received a regulatory nod in January this year. The JV named Citi Orient Securities Co. will carry on investment banking activities including securities underwriting and sponsoring.

Our Take

The beefing up of capital levels is an impressive effort on the part of Citi. The company is also emphasizing on growth in the international markets in the midst of a slowdown in the U.S. market. The company has an encouraging overseas presence and is making every effort to expand and tap opportunities in the emerging markets.

Citi’s efforts to expand its business in China are part of its strategy to explore its thriving economy and booming consumer and commercial market. We believe that with such expansion efforts, Citi’s global network will be enhanced and its revenue base will benefit by leveraging on faster-growing economies like China, thereby increasing its market share internationally.

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