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Citi to Shed Brazilian Assets

Zacks Equity Research

Citigroup Inc. (C) has put up its Brazilian consumer finance division, known as Credicard and Credicard Financiamentos, for sale. Citigroup plans to complete the divestiture by the end of this month and anticipates 1.5 billion reais ($761 million) from it. Banco Santander (Brasil) S.A. (BSBR), Banco Bradesco S.A. (BBD) and Banco do Brasil S.A have emerged as prospective buyers.

Earlier, in 2006, Citi paid 280 million reais ($139 million) for the 50% stake in Credicard, and took over its long-time partner, Itau Unibanco Holding S.A. (ITUB) in the process. However, the U.S. banking giant has since struggled to gain a considerable grip in the largest market of Latin America due to intense competition. The deal indicated that Citi would exit retail operations in Brazil to focus on its core operations like high-income customers and investment banking.

Recently, regulatory upheavals led to Citi incurring higher expenses in Brazil. Thus, the aforementioned deal will also benefit Citi’s policy of boosting profitability by shedding non-core assets.

Citi´s Credit Card division has 4.7 million credit-card holders in Brazil, and accounts for 10% of the total billing in the Brazilian market. It also has 2.3 million customers at its financing unit. Thus, it is a tempting proposition for the local banks.

The local banks are seeking to garner more and more market share in the fast-growing retail banking market in Brazil. The acquisition of the consumer finance units of Citi would be a positive step in that direction.

We believe the sale of this non-core asset is a strategic fit for Citi. In fact, the company’s long-term strategy to shrink non-core assets will ultimately reduce its risk profile and free up capital to be invested in its core businesses.

Citi currently carries a Zacks Rank #3 (Hold).

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