January 29, 2011 / 2:38 AM / 9 years ago

EXCLUSIVE - Citi may hold back toxic assets in unit sale

NEW YORK (Reuters) - Citigroup Inc is open to holding back some toxic assets in a bid to get the most value from the sale of its consumer finance business, CitiFinancial, sources familiar with the situation said.

A Citibank branch is seen in Washington January 19, 2010. REUTERS/Jim Young/Files

Citigroup is asking for book value for the business, which is being looked at mostly by private equity firms, sources said.

Private equity firms, including Fortress Investment Group, KKR and Blackstone Group, are among potential bidders, sources said.

The process is in the early stages and a deal is not imminent. First-round bids are expected in early February, according to the sources, who declined to be named because these talks are not public.

A sale of the business, which is part of non-core Citi Holdings assets, will be the latest step by the U.S. bank in cleaning up its books in the aftermath of the financial crisis. However, it still has a long way to go before it rids itself of all its problem assets.

As of Dec. 31, 2010, Citi Holdings had $359 billion of assets. In March 2009, that figure was about $600 billion.

Citigroup is offering up CitiFinancial assets of roughly $12 billion to $13 billion in the auction, the sources said.

CitiFinancial’s book value could be between $2 billion and $3 billion, but would ultimately depend on how a deal is structured and the lending platform is valued, the sources said.

Citigroup has been positioning the business for sale. Last summer, it said CitiFinancial will shut 330 of its U.S. branches and cut between 500 and 600 jobs. It now has about 1,500 U.S. branches and will be renamed OneMain Financial in the summer.

By holding back some assets, the bank is hoping to make the business more attractive and its size manageable, sources said.

The private equity firms declined to comment, citing their policy not to do so on deal speculation. Citigroup wasn’t immediately available after hours on Friday.

PE EYES CONSUMER LOANS

Private equity firms have been eyeing U.S. consumer finance assets, looking to take advantage of a shrinking supply of consumer loans to people with credit problems as firms like Citigroup exit the market.

Last year, American International Group Inc sold most of its consumer finance unit to Fortress at a deep discount.

A Who’s Who of U.S. private equity and hedge fund world looked at the business and 10 parties did due diligence on American General Finance, sources told Reuters previously.

Bidders for American General Finance explored various ways to make a deal work, including asking for seller financing for the asset portfolio, loan loss guarantees and earn-out provisions that depend on loan performance, sources said at the time.

CitiFinancial’s buyers may face similar issues around coming up with financing to buy the business and fund operations, sources said.

Citigroup is asking the bidders to come up with various deal structures in their offers, sources said.

Citigroup, however, is under less pressure to rid itself of the business than AIG was when it sold American General Finance, which could give the bank more power to negotiate the price.

(Reporting by Paritosh Bansal; Editing by Gary Hill)

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