By Avik Das
(Reuters) - Citigroup Inc (NYSE:C) said it has agreed to sell its consumer finance unit OneMain Financial Holdings Inc to subprime lender Springleaf Holdings Inc for $4.25 billion (2.76 billion pounds) in cash.
The sale of OneMain, which Citigroup has been seeking to hive off since 2011, is a major step in the No. 3 U.S. bank's plan to sell unwanted assets and focus on wealthier clients.
The deal will create a lender with $15 billion in assets and nearly 2,000 branches serving the large and growing population of non-prime customers in the United States.
Springleaf shares soared 38 percent to a record $52.44 on Tuesday. Citigroup's shares were marginally higher at $53.60.
"This is a big step (by Citigroup) towards freeing up some of the capital that can be returned to shareholders through dividends and buybacks," Sandler O'Neill & Partners analyst Jeffery Harte said.
Citigroup said it will use a part of the sale proceeds to retire certain funding that currently supports Citi Holdings, which, along with the remaining proceeds, is expected to add about $1 billion to earnings before income taxes.
OneMain, which provides loans to meet unexpected expenses and to buy small-ticket items, is part of Citi Holdings – created during the financial crisis to park assets that Citigroup wanted to eventually divest or wind down.
Citigroup had reduced Citi Holdings' assets to $98 billion, or 5 percent of the bank's total assets, by the end of 2014, from a peak of more than $875 billion, or over 30 percent of assets.
OneMain had filed to go public in October, but Citigroup had always preferred an outright sale. However, potential buyers had trouble raising funds and Citigroup was unwilling to sell at the prices offered at the time.
Springleaf, majority owned by Fortress Investment Group LLC, had outbid other suitors, including private equity firms, in an auction for OneMain, Reuters reported in February.
OneMain and Springleaf's combined net income is expected to be $800-$900 million in 2017, Springleaf CEO Jay Levine said on a conference call. Springleaf's earned $633 million in the nine months ended Sept. 30.
Springleaf expects the deal to add to earnings in 2015.
Bank of America Merrill Lynch, Barclays (LONDON:BARC), Credit Suisse and Goldman Sachs are Springleaf's financial advisers, while Skadden Arps Slate Meagher & Flom LLP is legal counsel.
Citi is OneMain's financial adviser and Davis Polk & Wardwell is its legal adviser.