UK insurance group Prudential is selling
its loss-making UK card issuing and internet banking operation Egg
to US financial services giant Citigroup for £575 million ($1.12
billion) in cash, only a month after Prudential rejected an earlier
approach from Citigroup. The purchase price secured by Citigroup
for 100 percent ownership of Egg is far below the business’s market
value of £1.1 billion in February 2006, when it was delisted from
the UK stock market.

Citigroup said it intends to retain the Egg brand and the unit will
be combined with its UK consumer operations. The purchase includes
online products and services including payment and account
aggregation services, credit cards, personal loans, savings
accounts, mortgages, insurance and investments. Citigroup said the
acquisition will more than quadruple its UK credit card base by
adding Egg’s approximately 2.9 million credit card customers to
Citigroup’s 800,000 cardholders.

Egg continues to underperform

Citigroup’s acquisition of Egg, which is subject to regulatory
approval, brings to a close the protracted sale process of Egg.
Prudential originally put Egg up for sale in January 2004.

Initially, US card issuer MBNA, which was acquired by Bank of
America in 2006, was rumoured to have offered to buy Egg, which led
to interest from a range of major card issuers such as Royal Bank
of Scotland, HSBC and Capital One. Prudential delisted Egg after
buying out minority shareholders in December 2005 following its
failure to sell its majority 79 percent stake in the company.

However, Egg has continued to underperform, and lost £39 million in
the first half of 2006. In October 2006, Prudential warned that Egg
was expected to report similar levels of losses in the second

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Despite Egg being a loss-making operation, its brand is highly
recognisable in the UK, and Citigroup said it would explore synergy
opportunities to ensure that customers get the best from both
companies, including Egg’s online platform and customer service and
Citigroup’s global banking capabilities.

Citigroup’s UK consumer business currently serves over 1 million
customers, primarily in the wealth management and near prime
lending markets, and offers current, savings and foreign currency
accounts, credit cards, investments, offshore banking, personal
loans and mortgages. It has five retail bank branches and 100
consumer finance branches, and offers 24/7 online and telephone
banking in the UK.

UK a key strategic market

According to Citigroup, the acquisition is consistent with its
strategic growth plans for the UK, and boosts Citigroup’s position
as a significant player in the UK personal financial services
market. In December 2006, Citigroup Global Wealth Management
announced the acquisition of Quilter, a UK wealth advisory

Ajay Banga, chairman and CEO of Citigroup Global Consumer Group –
International, said: “Egg is an excellent strategic fit with our
business and we are excited to have the opportunity through this
acquisition to broaden our international consumer banking business,
and make our products and services available to more people around
the world. We also will be able to learn from Egg’s successful
direct banking platform to enhance our global offerings.”

George Awad, CEO of Citigroup’s Global Consumer Group for the
Europe, Middle East and Africa region, said: “We like Egg’s brand;
we like Egg’s platform; we like Egg’s customer engagement model;
and we like Egg’s customer set. This is a terrific acquisition for
Citigroup, because it provides us meaningful scale in consumer
financial services in the UK, a key strategic market, and enables
us to enhance the value proposition for customers. We will deliver
growth by combining Egg’s leading edge online products and
distribution with Citigroup’s global banking expertise and scale.
We look forward to working with the team at Egg.”

Mark Tucker, CEO of Prudential, told journalists and analysts
during a conference call that the sale of Egg was driven by
continuing challenging credit conditions in the UK. “We concluded,
particularly in the light of the challenging conditions in the
consumer credit market, that the sale of Egg would realise greater
value than would be achievable through retaining the business,” he