The operations that Citigroup is selling consist of $44 billion in assets and generated more than $1 billion of profit in 2021.
When Citigroup (NYSE:C) embarked on its strategy refresh last year to transform the bank into a more profitable and efficient organization, many wondered at the time what might happen to Banamex, a Mexican subsidiary that Citigroup bought in 2001 and one of the largest financial institutions in Mexico. Investors and analysts got their answer recently when Citigroup announced that it plans to exit or sell the consumer, small business, and middle-market banking operations of Banamex. The bank plans to maintain its institutional businesses in the country. With Banamex as profitable as it is, some may be wondering why Citigroup is planning to get rid of these businesses. Let’s take a look.
Aligned with strategy
The portion of the business in Mexico that Citigroup is planning to sell or exit consists of $44 billion in assets. In 2021, the business generated nearly $4.7 billion in revenue and a net income of $1.1 billion. The business is supported by $4 billion of capital. If you think about Citigroup’s full-year earnings in 2021 of nearly $22 billion, this portion of the business Citigroup is selling constitutes about 5% of the bank’s total profits. The business is also generating a nearly 28% return on tangible common equity ($1.1B/$4B), which is very strong in the banking industry.
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However, keeping these operations would not really align with Citigroup’s strategy refresh. One of CEO Jane Fraser’s first moves, when she took over for Michael Corbat, was to announce that Citigroup would sell or wind down 13 global consumer franchises.
The goal is to make the sprawling bank simpler and focus on Citigroup’s higher-returning institutional businesses while doubling down on businesses that aren’t as capital-intensive, like global wealth management.
The only place where the bank looks like it will focus on retail banking in the near future is in the U.S. I think that makes sense, considering that Citigroup has a 4% deposit market share in its home country, a strong credit card business, and a well-known brand. As Fraser said on Citigroup’s recent earnings call:
We took a clinical look at our franchise in Mexico, and we drew the hard conclusion that the noninstitutional businesses do not fit our new strategic direction. Now to be clear, these are terrific; they’re scaled, high-returning franchises. But our strategic goal is to invest in businesses that are fully aligned with our core strengths and to simplify our firm.
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