In furtherance of its strategy to shed retail banking operations in Texas, Citigroup Inc. (C) agreed to vend 41 retail branches to BB&T Corporation (BBT). This is in addition to the deal to divest 21 branches to BB&T in Dec 2013, which was completed in Jun 2014. The company has been experiencing subdued growth and a fall in its market share in Texas.
Citigroup will receive a 5.3% premium to book value on approximately $2.3 billion in deposits. The bank will sell all the Citibank retail branches located in Dallas, Houston, Midland and Odessa markets. Further, BB&T will assume $2.3 billion in deposits and $87 million in loans. The transaction, still subject to regulatory approvals, is expected to close by the first quarter of 2015 and will not impact earnings.
However, Citigroup will continue to offer credit cards and mortgage loans to individuals in Dallas and Houston through online banking and not through branches. The bank is focused on expansion in major urban markets with increased investments and banking through digital channels nationally.
Citigroup operates in numerous markets worldwide. Therefore, Michael Corbat after taking over as Citigroup’s Chief Execution Officer (CEO) in 2012 planned to restructure, reduce or exit some of the operations in 21 markets globally to enhance returns. Though names of such markets were undisclosed, it was intimated that most of these involve consumer businesses.
Since then, Citigroup announced its plans to exit consumer businesses in countries including Honduras, Turkey, Romania, Uruguay and Paraguay. Recently, the bank agreed to vend its consumer-banking businesses in Greece and Spain.
While Citigroup is encountering issues from various fronts including the ongoing investigations related to the Mexican fraud and the Federal Reserve’s rejection of its 2014 capital plan, the deal will give the company some financial flexibility.
We believe the company is well positioned to resolve its internal inefficiencies and setbacks. Further, we believe these streamlining initiatives will bolster the company’s capital position, reduce expenses and drive operational efficiencies.
Citigroup currently carries a Zacks Rank #3 (Hold). However, some better-ranked banking stocks include Farmers Capital Bank Corporation (FFKT) and Bank of the Ozarks, Inc. (OZRK). Both of these carry a Zacks Rank #1 (Strong Buy).
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