Citigroup has been busy over the past several months, as CEO Michael Corbat continues to lighten minority stakes. Just days ago, Citigroup officially confirmed the deal to send OneMain Financial to Springleaf for $4.25 billion, help cutting Citigroup’s exposure to the subprime consumer lending business. Today, Citigroup announced that it would be ending its investment in Turkish bank, Akbank TAS. Akbank is the second largest bank in Turkey, and makes up a significant part of Turkish stock index, giving investors anxiety over continued downward pressure on Turkish stocks. Citigroup lost $800 million since investment’s inception in 2007.
Citigroup originally paid $3.1 billion for 20% stake in Akbank in 2007
Citigroup opened up its 20% stake in Akbank in 2007 for a tab of $3.1 billion. However, the investment never really was able to take off, as the 2008 worldwide economic slowdown hit and the slow recovery ensued. Over the years, Citigroup had cut its stake to 9.9% after continued poor performance. This morning, Citigroup sold its 9.9% stake, or 396 million shares of Akbank to raise $1.15 billion back. Akbank shares, which make up 8% of Turkey’s main stock index, traded lower -5.6%. Turkey has some issues right now, which have led to the country having the second worst stock market performance of the year so far.
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Citigroup’s negotiation and a struggling Turkey
Citigroup was in a three year lockup with Akbank shares, but negotiated for the ability to sell them before the three year period was up, this is what has sparked further declines in the market and fears that the Turkish stock market could be continuing lower. Already, Turkey is dealing with a debate over central bank independence, the Turkish Lira is trading at an all time low against US Dollar at 2.60, and banks looking a bit unstable. The early sale of the Akbank shares certainly was not the vote of confidence that the markets were looking for, but with political and economic risks continuing to pile up, Citigroup exited risk and raised capital.
Overall, Citigroup appears to be one of the few big American banks that is actively seeking to shrink and lighten up some of its more risky assets. Yesterday, Federal Reserve Chairwoman Janet Yellen said in an interview that banks have been reckless in the past and there needs to be a greater focus on raising capital and remaining stable. While Turkey’s market may be a bit on edge, Citigroup did what it had to do to continue minimizing risk.