Citigroup has struck a deal to sell its subprime lender OneMain Financial to Springleaf, the U.S. consumer lender, for $4.25 billion in cash, finally putting an end to the New York bank’s long-running effort to sell the unit.
The deal will make the combined Springleaf -OneMain lender into the biggest subprime lender in the U.S.
Gates Capital's ECF Value II fund was up 9.4% for the first quarter, compared to the HFRI Event-Driven Index's 8.2% gain, the Russell 2000's Value Total Return Index's 21.2% gain, and the S&P 500's 6.2% return. Q1 2021 hedge fund letters, conferences and more Gates Capital Management is an event-driven value . . . SORRY! Read More
OneMain doesn’t fit into Citigroup’s strategy
As reported by ValueWalk last month, subprime lending group Springleaf was in “exclusive” talks with Citigroup to potentially purchase their subprime lending unit OneMain Financial. It was reported that Springleaf has agreed to pay over $4 billion for OneMain.
Lender Springleaf Holdings announced Tuesday that it has agreed to buy Citigroup’s OneMain Financial for about $4.25 billion in cash. Citigroup has been sprucing up OneMain for a potential sale, dtightening underwriting standars and getting OneMain to raise funding by selling securities backed by its own losses.
Springleaf, majority-owned by private-equity firm Fortress Investment Group LLC, anticipates the deal to add $470 million to its earnings in 2017.
Citigroup Chief Executive Michael Corbat called OneMain “a terrific business”, as OneMain has turned profitable thanks to the resurgence in subprime lending. However, he indicated that OneMain doesn’t fit “the Citi model”, which has veered to focus on wealthier customers.
Springleaf-OneMain – The biggest subprime lender in the U.S.
OneMain and Springleaf are two of the biggest U.S. providers of installment loans, a type of high-interest credit paid back in chunks over time. OneMain, of Baltimore, has more than 1,100 branches, while Evansville, Indiana-based Springleaf has close to 830. The combined Springleaf-OneMain lender will have approximately 2.5 million customers and 2,000 branches, making it the biggest subprime lender in the U.S.
Interestingly, OneMain has more branches in the U.S. than Citigroup’s main bank which has roughly 850 U.S. branches. The latest deal will mark a milestone in the wind down of Citi Holdings, the “bad bank” created in 2009 under former chief executive Vikram Pandit. Citigroup indicated that it will use a portion of the sale proceeds to retire funding that supports Citi Holdings. The sale and the funding retirement are anticipated to add $1 billion to its pre-tax earnings.
Springleaf anticipates the deal will help save about $200 million to $300 million in costs.
Though earlier Citigroup had considered spinning off OneMain via an initial public offering, selling the business directly could facilitate Citi to utilize its deferred tax assets, an accounting quirk that rewards the New York-bank for earnings generated in the U.S.
Last year, Richard X. Bove of Rafferty Capital Markets, argued that time was ripe for Citigroup to sell OneMain Financial.