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Citigroup (C) to Exit Muni Business, Focus on Core Strengths
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Citigroup Inc. (C - Free Report) , after several months of review, has planned the dismantling of its municipal bond business by the end of March 2024, per an internal bank memo. According to a person familiar with the matter, the move would affect around 100 Citigroup employees.
The company had a flourishing municipal bond business for several years. However, several concerns in the business operations have caused it to consider the sale of the unit.
Two of C’s executives, namely, Andy Morton and Peter Babej stated, "The economics of these activities are no longer viable, given our commitment to increase the firm’s overall returns."
Going forward, new capital requirements are expected to make the business less profitable. Moreover, certain government efforts at state levels have restricted the bank’s ability to participate in the municipal business until it complies with the local requirements. Notably, the state of Texas removed Citigroup from various deals because of its firearms policies.
Nonetheless, per its memo, Citigroup has communicated that it would continue to work with state and local governments on infrastructure projects through public-private partnerships as well as the private placement market. Also, the bank will purchase municipal bonds and finance affordable housing projects in the state.
The business exit is in line with Jane Fraser’s focus to align the company’s efforts to serve the big, multinational corporations and increase operational efficiency by withdrawing from the non-profitable segments.
Particularly, since April 2021, Citigroup has been emphasizing on growth in core businesses by shrinking international operations. The company remains on track to exit the consumer banking business in several international markets and focus on growth in wealth management and personal banking space.
Jane Fraser has also been simplifying Citigroup’s governance structure by eliminating various management layers to increase efficiency. Accordingly, the leaders of each of C’s five main businesses will be members of the Executive Management team and report directly to Fraser, thus increasing accountability and ensuring a swifter decision-making process.
In line with the organizational realignment, in November 2023, Citigroup commenced the elimination of various jobs. Per a Yahoo Finance article quoting Bloomberg, the job cuts involved approximately 10% of Citigroup’s senior manager roles, which aggregated to around 300 managers.
The company’s shares have gained 3.1% in the past six months compared with the industry’s 16.1% growth.
Earlier this month, BOK Financial Corporation (BOKF - Free Report) announced the sale of its risk management and employee benefits insurance brokerage and consulting business — BOK Financial Insurance, Inc. — to USI Insurance Services.
BOKF expects the transaction to result in a pre-tax gain of $28 million post-transaction-related expenses. The bank intends to use this gain to realize an equivalent loss on its available-for-sale securities portfolio and will rotate into higher-yielding securities. This will result in a net benefit to BOKF’s recurring earnings in the upcoming years.
Cadence Bank (CADE - Free Report) closed the sale of its insurance business, Cadence Insurance, Inc., to Arthur J. Gallagher & Co. (AJG - Free Report) in a cash deal worth $904 million. The amount is subjected to certain customary purchase price adjustments.
The deal between CADE and AJG was announced on Oct 24, 2023, and was expected to have a positive impact on CADE’s earnings per share. The company projected that the transaction would result in an immediate net capital increase of approximately $620 million and net cash proceeds would amount to around $650 million. Both estimations are made on an after-tax basis.
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Citigroup (C) to Exit Muni Business, Focus on Core Strengths
Citigroup Inc. (C - Free Report) , after several months of review, has planned the dismantling of its municipal bond business by the end of March 2024, per an internal bank memo. According to a person familiar with the matter, the move would affect around 100 Citigroup employees.
The company had a flourishing municipal bond business for several years. However, several concerns in the business operations have caused it to consider the sale of the unit.
Two of C’s executives, namely, Andy Morton and Peter Babej stated, "The economics of these activities are no longer viable, given our commitment to increase the firm’s overall returns."
Going forward, new capital requirements are expected to make the business less profitable. Moreover, certain government efforts at state levels have restricted the bank’s ability to participate in the municipal business until it complies with the local requirements. Notably, the state of Texas removed Citigroup from various deals because of its firearms policies.
Nonetheless, per its memo, Citigroup has communicated that it would continue to work with state and local governments on infrastructure projects through public-private partnerships as well as the private placement market. Also, the bank will purchase municipal bonds and finance affordable housing projects in the state.
The business exit is in line with Jane Fraser’s focus to align the company’s efforts to serve the big, multinational corporations and increase operational efficiency by withdrawing from the non-profitable segments.
Particularly, since April 2021, Citigroup has been emphasizing on growth in core businesses by shrinking international operations. The company remains on track to exit the consumer banking business in several international markets and focus on growth in wealth management and personal banking space.
Jane Fraser has also been simplifying Citigroup’s governance structure by eliminating various management layers to increase efficiency. Accordingly, the leaders of each of C’s five main businesses will be members of the Executive Management team and report directly to Fraser, thus increasing accountability and ensuring a swifter decision-making process.
In line with the organizational realignment, in November 2023, Citigroup commenced the elimination of various jobs. Per a Yahoo Finance article quoting Bloomberg, the job cuts involved approximately 10% of Citigroup’s senior manager roles, which aggregated to around 300 managers.
The company’s shares have gained 3.1% in the past six months compared with the industry’s 16.1% growth.
Image Source: Zacks Investment Research
C presently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Divestures by Other Companies
Earlier this month, BOK Financial Corporation (BOKF - Free Report) announced the sale of its risk management and employee benefits insurance brokerage and consulting business — BOK Financial Insurance, Inc. — to USI Insurance Services.
BOKF expects the transaction to result in a pre-tax gain of $28 million post-transaction-related expenses. The bank intends to use this gain to realize an equivalent loss on its available-for-sale securities portfolio and will rotate into higher-yielding securities. This will result in a net benefit to BOKF’s recurring earnings in the upcoming years.
Cadence Bank (CADE - Free Report) closed the sale of its insurance business, Cadence Insurance, Inc., to Arthur J. Gallagher & Co. (AJG - Free Report) in a cash deal worth $904 million. The amount is subjected to certain customary purchase price adjustments.
The deal between CADE and AJG was announced on Oct 24, 2023, and was expected to have a positive impact on CADE’s earnings per share. The company projected that the transaction would result in an immediate net capital increase of approximately $620 million and net cash proceeds would amount to around $650 million. Both estimations are made on an after-tax basis.