Citigroup Inc. (C - Analyst Report) has agreed to purchase part of the shipping loan book from Societe Generale SA (SCGLY). The terms of the deal were not disclosed. However, according to a Reuters report, Citi is said to have paid $1.3 billion for the loan portfolio.
The deal comes as Citi and other U.S. banks take advantage of the crisis over the European banks. Amidst the Eurozone crisis and the requirement to beef up capital levels to satisfy regulator’s stricter capital norms, European banks are shedding their businesses, particularly the non-core and the risky ones.
Besides Societe Generale, Royal Bank of Scotland Group Plc. is also trimming its business. Earlier in the year, the company sold off its aircraft leasing business to Japan’s Sumitomo Mitsui Financial Group Inc.
Moreover, recently, commercial real estate loans worth $760 million in U.S. key markets were sold off by Eurohypo AG to U.S. Bancorp (USB - Analyst Report), Wells Fargo & Company (WFC - Analyst Report) and The Blackstone Group LP (BX - Analyst Report).
Earlier In February, Wells Fargo agreed to acquire the North American energy lending business of BNP Paribas SA (BNPQY) with nearly $9.5 billion of loan commitments and approximately $3.9 billion in loans outstanding. The acquisition was closed in April 2012.
Apart from purchasing loan portfolios, the U.S. banks are also benefiting from the withdrawal of European banks from the competitive loan pricing market.
We think the Societe Generale deal is a strategic fit for Citi. It would help augment Citi’s loan book and boost its trade finance business. In fact, going forward, one can consider a company like Citi as a value investment given its global footprint and attractive core business. For Societe Generale, the deal would increase its capital level to meet stricter capital norms.
Citi shares currently retain the Zacks #3 Rank, which translates to a short-term Hold rating. Considering the fundamentals, we also maintain a long-term Neutral recommendation on the stock.