Citi secures bids for consumer finance arm CitiFinancial

Citigroup has drawn a step closer to selling its consumer finance business, securing at least three bids of about $2bn from private equity groups.

The division traces its roots to Commercial Credit, the building block upon which Citi’s former chairman, Sandy Weill, built his financial empire. Yet when the bank set aside businesses and assets that did not fit its post-crisis strategy, the unit – named until recently CitiFinancial – was among those targeted for disposal. Last week at least three private-equity consortiums submitted bids in the second round of Citi’s auction for the business, according to people familiar with the matter. The bank will hold a third round before asking for final bids, the people said.

One group included Blackstone Group, Carlyle and Brysam Global Partners, the group run by former Weill lieutenants Robert Willumstad and Marjorie Magner, said those close to the situation. Clayton Dubilier & Rice and Onyx comprise a second consortium, while Apollo Management and JC Flowers were part of a third group, the people said.

The consortia submitted bids that either came close or met Citi’s asking price of $2bn, the business’s book value.

While the offers underline mounting demand for consumer finance businesses, many of the would-be buyers remain sceptical that they can solve the main challenge that has confounded many lenders since the crisis: how to fund a finance company that cannot attract cheap deposits.

In August, Fortess Investment Group bought 80 per cent of AIG’s consumer finance arm, American General Finance, for a fraction of the division’s $2.1bn book value. AIG recorded a $1.9bn loss on the sale.

Lingering uncertainty surrounding CitiFinancial’s funding – and Citi’s price expectations – prompted at least one potential acquirer, Warburg Pincus, to lose its enthusiasm for the deal. For its part, Citi had indicated it would be willing to help finance the division for a time after the sale, the people said.

The bank has closed more than 300 CitiFinancial branches, stopped making loans at 184 more and rechristened the remaining 1,500 OneMain Financial. The division has about 2m customers. The sale would mark yet another departure from the strategy embraced by Mr Weill, who built the former Commercial Credit into the largest US consumer finance company. In 2000 he paid $31bn to acquire Associates First Capital, another consumer lender.

Not long after Mr Weill took control of Consumer Credit in 1986, he persuaded a pair of Chemical Bank executives, Mr Willumstad and Ms Magner, to join him in Baltimore to help run the business.