Citi to Hang On to Consumer Finance Arm, for Now

Citigroup Inc. appears to have abandoned its plan to sell its consumer lending unit until the economy improves and it can fetch a better price for it, according to Fitch Ratings Inc.

Citi put the unit, now called OneMain but previously known as CitiFinancial, on the block in 2009 as part of a broad strategy to shed noncore assets.

Several news outlets reported last week that negotiations to sell OneMain to conglomerate Berkshire Hathaway and two private equity groups collapsed after the prospective buyers concluded that they would have difficulty funding the business going forward. In a note published Wednesday, Fitch said that any buyer would likely need to fund the consumer lending business by bundling and securitizing loans — an immense challenge at a time when secondary-market demand for consumer loans is very weak.

"While potential buyers remain wary of businesses that rely on loan securitization, we believe Citigroup will continue its exploration of separation opportunities once markets stabilize," Fitch said.

Until a buyer is found, Citi intends to keep the profitable OneMain in the CitiHoldings portfolio that Citi set up in 2009 to house its noncore assets, according to Fitch. That portfolio now houses $289 billion of assets, or 15% of Citi's total assets, down from roughly $650 billion three years ago.

In its two largest deals, Citi sold its student lending business to Discover Financial and dealt its Smith Barney brokerage business to Morgan Stanley.

The company also said recently that it intends to transfer its retail partner cards business, with assets of $44 billion, from CitiHoldings back to its core bank sometime this quarter.

Fitch said that the partner card business is roughly two-thirds its prior size and has been generating favorable returns in recent quarters.

"We feel Citigroup's decision to shift its retail partner card business back to core likely reflects management's confidence in ongoing favorable performance dynamics, underscored by high spreads combined with better risk control," Fitch said.