Citi Closes Student Loan Corp. Sale

Citigroup Inc. (C - Analyst Report) closed the sale of its subsidiary, The Student Loan Corp., on December 31, 2010, to Discover Financial Services (DFS - Analyst Report) and SLM Corp. (SLM - Analyst Report), commonly known as Sallie Mae.

The Sell-Off

The deal, which was announced last September, saw Sallie Mae acquiring $27 billion of securitized federal student loans and related assets from Student Loan Corp. as well as adding 1.3 million customers to its customer base.

Discover Financial acquired the company’s private student loan business and private student loans and other assets totaling $4.2 billion, coupled with $3.4 billion of Student Loan Corp.’s existing asset-backed securitization funding and other liabilities.

As part of the transaction, Citibank also purchased $8.7 billion of Student Loan Corp.’s federal and private student loans and other assets. Over time, Citi intends to reduce these assets.

A Win-Win Situation

It is a win-win situation for Citi, Discover as well as for Sallie Mae. The sale of Student Loan Corp. reduced non-core assets in Citi Holdings by around $31 billion. This is in sync with Citi’s strategy of deleveraging Citi Holdings, its non-core assets portfolio.

Since the last two years, the company has been reducing non-core assets at Citi Holdings through a number of steps including joint ventures, divestitures and asset run-offs, investing the money thus generated in the company’s core business. The student lending business does not fit in the company’s core activities and was therefore made a part of Citi Holdings.

As a matter of fact, Citi has already announced the sale of a number of its businesses within Citi Holdings. Following these transactions, assets at Citi Holdings are expected to represent less than 20% of the company’s total balance sheet as of year-end 2010.

For Discover, the acquisition of Student Loan Corp., which has more than 50 years of expertise, expands its presence in the private student loan market. The acquisition would enable Discover to gain market share in the private student loan market and support earnings in the upcoming quarters.

For Sallie Mae, the acquisition expands the company’s customer base. It added approximately 1.3 million new customers. Following this transaction, the company now manages and services more than $200 billion in federal student loans and $36 billion in private student loans.

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