After weeks of strenuous denials it was planning to offload any of its Brazilian banking operations, financial behemoth Citi has finally buckled under the need to shore up its capital reserves, and is reported to be selling its 17 percent stake in Brazilian card processor and acquirer Redecard.
Such a sale could bring Citi around BRL3.05 billion ($1.27 billion), money that the group desperately needs as it fights to survive full nationalisation by the US government, which has so far ploughed $52 billion into the struggling banking giant.
Citi, Redecard’s third-largest shareholder, will most likely sell its Redecard stake in a secondary stock offering to Redecard’s Brazilian bank shareholders who have right of first refusal. Banco Itaú has been touted as the favourite to buy all or a portion of Citi’s stake in Redecard, which processes MasterCard and Diners Club card transactions. Currently Banco Itaú and Unibanco hold a combined 46.3 percent stake in Redecard.
Citi’s decision to sell its Redecard stake, which while bringing short-term financial gains for the bank, will no doubt be a blow, as Citi is effectively being forced to exit one of the most promising card payment markets in the world. Redecard’s fourth-quarter 2008 results, published in mid-February, show just how much Citi is giving up to ensure its own survival at home.
Redecard posted fourth-quarter net income of BRL343.1 million, up from BRL224.4 million in the year-ago period, whilst net revenue rose 35.1 percent to BRL776.4 million. Redecard also saw credit card financial volume jump from BRL20.4 million in the fourth quarter of 2007 to BRL24.1 million in the fourth quarter of 2008, an increase of 17.8 percent, while debit card financial volume rose 20.6 percent to BRL12.6 million.
However, there are growing fears that Citi may not escape nationalisation by the US government. The week ending 20 February saw Citi’s share price plummet for the sixth consecutive day, making it more likely the authorities will take complete control of Citi, leaving its shareholders with nothing.
Meredith Whitney, the esteemed US banking analyst from Oppenheimer & Co, who first predicted Citi’s fall from grace over a year ago, has added to the gloom around Citi, saying that she expects further bad news to arise in 2009.
“Most of the big banks would be lucky to break even or earn a little bit of money this year,” Whitney said in an interview with television channel CNBC. “Citi to me is still the biggest risk position out there.”
Whitney added that nationalisation of troubled US banks would not solve their bad loan problems.
“There need to be moves to disaggregate the concentration of loans from top banks. But I have not heard anything like that going on in Washington DC,” she said.
Citi’s sell-off is not just being restricted to the Americas. In Turkey, another dynamic card payment market, Citi owns 20 percent of market leader Akbank, and speculation over Citi’s fate saw Akbank shares dive by as much as 7 percent on 20 February as nationalisation rumours around Citi reached fever pitch.
Should Citi also offload its stake in Akbank, it is likely that the Sabanci Holding conglomerate and its subsidiaries, which already hold 40.85 percent of Akbank shares, may increase their equity holding.