AUSTIN — Four years after entering Texas with its purchase of First American Bank in Bryan, Citigroup Inc. is looking for an exit strategy.
The $2.2 trillion-asset New York company last month sold eight Texas branches to Happy State Bank and Trust Co. in Amarillo, and several industry sources said the nation's largest banking company is actively seeking a buyer for the rest of its Texas franchise.
A Citigroup spokesman said the company does not comment on market speculation, but industry insiders said that selling its 126 branches and $4.4 billion of deposits in Texas would probably go over well with Citigroup investors, who have been pressing the company to sell peripheral assets and focus on its core businesses.
Morgan Stanley analyst Betsy Grasek said that Texas has been an especially awkward fit for Citigroup since it bought the $3.5 billion-asset First American, because many of the Texas branches are in rural areas and Citigroup operates mainly in urban markets.
"It's not a shock," Ms. Grasek said of the bank's presumed desire to leave the state. "They are trying to get rid of a lot of stuff … . If they can sell it at a small premium or even no premium, it could be helpful in the execution of shrinking the balance sheet."
Roughly 40% of Citigroup's Texas branches are in major metropolitan markets — Houston, Dallas, and San Antonio — the rest are in smaller cities and rural communities.
The Texas deposits make up about 2% of Citigroup's total, and the branches are 9% of its network overall.
At June 30, 2007, Citigroup held the 16th-largest market share in Texas, with just under 1% of the state's $450 billion of deposits, according to Federal Deposit Insurance Corp. data.
Dan Bass, the managing director of the Houston office of Carson Medlin Co., said Citi's Texas business might be small to the parent but is large enough to entice a regional bank looking to enter the state or to bulk up in it.
"Citi is so large, it isn't a big deal for them, but it is a big deal for Texas," Mr. Bass said.
But even in a market as attractive as Texas, Citi could have a hard time selling all the branches at once.
In the current economy, many banks are opting to hold on to their capital rather than spend it on acquisitions.
Mr. Bass estimated that Citigroup would seek a 6% to 8% premium on the deposits, which, on the low end, would price a deal at about $260 million.
"That price tag is pretty significant," Mr. Bass said. "There are only a handful of buyers who could afford it. You could break it apart and sell it as pieces, but that makes it a lot more complex."
Still, Citigroup has been known to sell off portions of its branch network in recent years.
Aside from the branches it recently sold to the $880 million-asset Happy State Bank, it sold its retail banking and brokerage operation in Puerto Rico to Popular Inc. last year and in 2006 sold its 21 upstate New York branches to M&T Bank Corp. of Buffalo.
After the March deal with Happy State Bank, Darryl Hendricks, Citigroup's central-division manager for Texas and Illinois, said in a memo to employees that the company remained "committed to maintaining and expanding in Texas, where we have a great and growing franchise."
But J. Pat Hickman, Happy State Bank's chairman and chief executive officer, said that Citi had started shopping portions of its Texas branch network in markets such as Amarillo, Odessa, Midland, and Wichita Falls in early 2007. The company pulled back when it did not get offers it felt were sufficient, he said.
Happy State's offer for the Amarillo-area branches was rejected at the time, he noted, but Citigroup approached him again last November.
The branches Happy State bought were in Amarillo, Pampa, and Hereford.
