Citigroup (C) Brazil Unit Divestment May Take Up To 3 Months

Per a Reuters report, the Wall Street giant Citigroup Inc. (NYSE:C) will take another three months to finalize the sale of its Brazilian retail banking unit. However, Helio Magalhaes, senior country executive for Citigroup in Brazil, did not disclose the names of the potential bidders and said the bank is working on the sale of the unit.

"We probably have two or three months ahead until getting some news," Magalhaes stated during a meeting with Brazil Finance Minister Henrique Meirelles.

According to sources, Brazilian bank – Itau Unibanco Holding SA (NYSE:ITUB) and Spanish bank – Banco Santander Brasil SA (MC:SAN) are interested in buying parts of Citigroup's Brazilian business unit.

Background

In Feb 2016, Citigroup announced the reduction of its footprint in Brazil, Argentina and Colombia, in line with its strategy of minimizing its international operations. The bank intends to transfer its retail banking and credit card operations to Citi Holdings from Citicorp.

Regulatory pressure over Citigroup’s global operations and concerns of weak returns were the reasons behind this move. Aimed at increasing the efficiency of the company’s overall business, the initiatives include streamlining operations and optimizing footprints across geographies. Notably, while Argentina’s economy has been under pressure after years of currency control and policies restricting it from accessing international capital markets, the Brazilian economy is faced with the worst crisis in decades.

Citigroup’s plans to exit from the Brazilian market follows HSBC Holdings (LON:HSBA) plc’s (NYSE:C) announcement to divest its entire Brazilian business to Banco Bradesco S.A. (NYSE:BBD) in Aug 2015. The all-cash deal was valued at $5.2 billion.

Conclusion

Amid troubled tides, Citigroup is likely to gain some financial flexibility from this move. We believe the company is well positioned to address its internal inefficiencies and setbacks. Further, we believe that the company’s streamlining initiatives will bolster its capital position, reduce expenses and drive operational efficiency.

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

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