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In furtherance of its strategy of shedding international operations, on Friday, Citigroup Inc. (C - Analyst Report) came up with the announcement of the sale of its retail banking operations in Uruguay. The agreement has been penned with Brazil-based Itau Unibanco Holding S.A. (ITUB - Analyst Report), which will take over a portfolio of more than 15,000 customers in Uruguay.

Most assets in the deal are attached to Citigroup’s credit-card operations. Notably, these operations accounted for 6% of the market in Uruguay in 2012. Financial terms of the deal were undisclosed.

Citigroup’s decision to sell its retail banking operations in Uruguay comes as part of its restructuring initiatives to counter the fall in revenues. Aimed at increasing the efficiency of the company’s overall business, the initiatives include streamlining operations and optimizing footprints across geographies.

With the completion of this agreement, the position of Itau Unibanco will be consolidated in the card market in Uruguay. Moreover, Itau Unibanco’s existing leadership in the retail and credit card markets with a diverse portfolio of products and services and specialized platforms will be strengthened.

Similar Moves

Earlier in May 2013, the Brazilian unit of Citigroup sold Credicard, its non-banking credit card and consumer finance business in Brazil for $1.37 billion (R$2.77 billion) to Itau Unibanco.

Moreover, in Apr 2013, Citigroup entered into a deal with DenizBank, the Turkish unit of Sberbank, Russia’s largest lender to vend its consumer banking unit in Turkey. The transaction price was undisclosed. Moreover, the deal is expected to be completed in third-quarter 2013.

As per the terms of the agreement, DenizBank will take over 1.2 billion liras ($650 million) worth of assets and 1.5 billion liras (about $800 million) of deposits of Citigroup’s Turkish unit.

Background

Earlier in Mar 2013, at an investor conference in Boston, Mike Corbat, the new chief executive officer (CEO) of Citigroup came up with financial targets for the company, set to be achieved by 2015. Additionally, the CEO announced restructuring initiatives for the markets where Citi operates its business.

Corbat aspires to earn a return of 10% on tangible common equity in 2015, up from 7.9% earned in 2012. Moreover, return on assets is expected in the range of 0.9% – 1.1%, up from 0.62% in 2012, adjusted for certain items. Specifically, at Citicorp, efficiency ratio is aimed to improve in the mid–50%.

Citigroup operates in numerous markets worldwide. Therefore, Corbat has planned to restructure, reduce or exit some of the operations in 21 markets globally to enhance returns. Though names of such markets were undisclosed, but it was intimated that most of them involve consumer businesses. Notably, in Dec 2012, Citi announced its plans to exit consumer businesses in Uruguay, Paraguay, Turkey, Romania and Pakistan.

Our Viewpoint

With the ambition of achieving financial targets in 2015 by restructuring the business, Corbat aims to provide clients with products globally. Streamlining of operations and efficiency improvements would aid Citi to accomplish its goals within the stipulated time.

Further, in a challenging operating environment with lower returns and stringent capital norms, bolstering revenue has become a challenge. Hence, many Wall Street banks are downsizing their businesses and announcing layoffs.

Citigroup currently carries a Zacks Rank #2 (Buy). The other well performing banks include JPMorgan Chase & Co. (JPM - Analyst Report) and KeyCorp. (KEY - Analyst Report)), with a Zacks Rank #2.

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