In an effort to arrange more funds for its core operations, Citigroup, Inc. (C - Free Report) is likely to shed its stake in Grupo Aeromexico, according to a Reuters report. Airways of Mexico, SA de CV – a company that operates as Aeromexico – is the flagship airline of Mexico and is based in Colonia Cuauhtemoc, Cuauhtemoc, Mexico City.
Earlier in 2007, Citi was among a group of investors that contributed a total sum of $250.0 million into the privatization of Aeromexico. Still the U.S. banking giant was the principal shareholder with a 37% stake. Among others, Atlanta based Delta Air Lines Inc. (DAL - Free Report) also holds a stake of roughly 5% in AeroMexico.
The rumors of Citi offloading its stake in AeroMexico are not unforeseen. Since 2007, the banking major has maintained that its investment in the Mexican airline is a provisional one.
Citi’s interest in AeroMexico is under Citi Holdings division, which was set up for its unwanted and underperforming assets and businesses. However, the unit’s waning revenues have proved to be a headwind for Citi’s finances. Citi Holdings recorded negative revenues of $3.7 billion in the third quarter of 2012 against positive revenues of $1.1 billion in the year-ago period.
Citi came up with the decision to divest its non-core and unprofitable operations to focus more on its core business lines. This comes on the back of a sluggish macroeconomic environment and stringent regulatory landscape.
Several other financial institutions have started shedding non-profitable businesses due to the slow economic growth. In August this year, Bank of America Corporation (BAC - Free Report) divested its international wealth management operations to Switzerland-based private bank Julius Baer Group Ltd. for roughly $882 million.
Citi currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. However, we believe that the bank’s global footprint and attractive core business can lead to an improvement in efficiency and add to its competitive edge.