According to a new research report from Richard X. Bove of Rafferty Capital Markets, Citigroup Inc (NYSE:C) is very likely to sell or spin off its OneMain Financial subsidiary by the end of the year.
Bove argues that the rime is now ripe for the sale, and that Citigroup Inc (NYSE:C) should be able to get close to $6 billion for OneMain Financial. At a $6 billion price, that means Citi would book $1.15 per share on the sale. Bove also says its possible a portion of the profits from the sale could be given to shareholders as a one-time dividend.
Michael Zimmerman’s Prentice Capital had an excellent year
Prentice Capital's Long/ Short Equity Fund was up 26% net for the fourth quarter, bringing its full-year return to 53.6% for 2020. In his fourth-quarter letter to investors, which was reviewed by ValueWalk, Michael Zimmerman said the development of COVID-19 vaccines, continued easy money and clarity in the election drove a risk-on environment. Q4 2020 Read More
History of OneMain Financial
OneMain Financial is the new face of three of the largest personal finance companies in the U.S. (Commercial Credit, the Associates, and Washington Mutual Financial). At one point, the three firms operated 3,000 personal and small business finance offices.
Commercial Credit, founded in 1912, was a favorite of Sandy Weill, Citigroup’s “founding father”. Mr. Weill became CEO Commercial Credit in 1988. He liked business because it produced positive cash flow that could be used for M & A activities.
The business model of Commercial Credit was leveraged by Weill to make acquisitions of larger financial companies until he eventually pulled off a merger of equals with legacy Citicorp. Following the once-improbable merger, Weill bought up The Associates and Washington Mutual Finance and merged them with Commercial Credit.
The new entity called OneMain Financial ran into trouble from the beginning. the financial institution was now a full-regulated company and was called to task over its lending practices in short order. The firm was forced to pay substantial fines and cease a variety of marketing activities. Then came the Great Recession, leading to many of its outstanding loans falling into default.
Citigroup’s OneMain Financial possible near-term sale
Bove says that although OneMain Financial has been on the chopping block for some time, it appears a window for Citigroup Inc (NYSE:C) to sell the unit is opening. The key development was OneMain Financial obtaining “new financing on its own merits without Citigroup backing.”
According to Bove, this means “that the division might finally be salable.” He also points to reports that Michael Corbat, the CEO of OneMain Financial, has stated that OneMain is “closer to sale”. Bove argues it is likely that a sake of One Main Financial would have a positive effect on Citigroup Inc (NYSE:C) stock.