Citi Sells $3.5B Loans to JPMorgan - Analyst Blog

Citigroup Inc. (C) has sold a $3.5 billion loan portfolio to JPMorgan Chase & Co. (JPM). This portfolio consists of around 3,800 performing loans, primarily multifamily and commercial real estate loans associated with properties in New York, California and Illinois. The terms of the deal were not disclosed.

This sale would reduce assets at Citi Holdings by $3.5 billion. However, this sale is part of the company’s strategy to reduce assets in Citi Holdings. Citi aims to de-leverage Citi Holdings, which consists of Citi’s non-core assets, through a number of steps that include joint ventures, divestitures, and asset run-offs. As a matter of fact, the company has already announced the sale of a number of its businesses within Citi Holdings.

In July, Citi announced that it is divesting its private equity funds, mezzanine and co-investment businesses to StepStone Group LLC and Lexington Partners. The deal, whose financial terms were not disclosed, is expected to close in the fourth quarter of 2010. This transaction would reduce Citi Holdings by $1.1 billion.

Previously, in June, Citi announced an agreement with Santander Consumer USA, an affiliate of Banco Santander SA (STD), following which Santander will purchase $3.2 billion of CitiFinancial Auto's auto loan portfolio. Santander will purchase the portfolio at a price equal to 99% of the value of gross receivables. The transaction is expected to close by the end of the third quarter of 2010.

Additionally in June, Citi announced that it has signed a definitive agreement to sell its Canadian MasterCard business to the Canadian Imperial Bank of Commerce. The terms of the sale were not disclosed. The sale will reduce Citi Holdings’ assets by approximately C$2 billion and is not expected to have a material impact on Citigroup’s net income or capital ratios. The transaction is expected to close by October 31, 2010, and is subject to regulatory approvals and usual closing conditions.

Though Citi’s restructuring efforts are welcome, the sluggish rate of economic recovery and high level of unemployment would somewhat restrict its earnings. We also believe that the shrinking of its business through assets sale and the CARD Act would prove revenue challenges. Nevertheless, the company’s core business, Citicorp, remains attractive. Its global footprint would boost its earnings and make up for losses in other areas.

Citi is currently rated as Zacks #3 Rank (Hold), implying no clear directional pressure on the stock over the next one-to-three months. The stock is also rated Neutral in the long term.

 
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