Citigroup expands retail presence buying British online bank

Banking, a British online bank owned by Prudential P.L.C., for $1.13 billion, the latest in a series of small deals to expand its retail presence abroad.

With the acquisition, Citigroup will quadruple its number of credit card customers, to 2.9 million, and broaden its reach by the use of an Internet site to open savings accounts and mortgages in a country where it has five retail branches.

But at a time when the British banking sector has been hurt by a barrage of bad loans and bankruptcies, some analysts are questioning the deal.

The cash transaction, which appeared to be at little more than twice book value, follows a string of small deals by Citigroup to buy or acquire stakes in banks in China, Turkey and Central America as well as Quilter Holdings, the British wealth management arm of Morgan Stanley.

Under pressure from investors, the chairman and chief executive of Citigroup, Charles O. Prince III, has turned to acquisitions to accelerate the growth he promised from a longer-term strategy focused on internal and international expansion. He has significantly cut back on investment spending and has moved to rein in expenses, The New York Times reports.

Citigroup also has been moving in recent years to expand its online banking presence. Its U.S. retail banking arm launched Citibank Direct in March 2006 to offer high-yield savings accounts to compete with similar offerings from other Internet banks and to attract more people to its online banking and bill paying services.

Ajay Banga, chairman of Citigroup Global Consumer Group - International, said that Citi hoped to capitalize on Egg's reputation for a consumer-friendly Web site and strong brand recognition.

He said that Egg's strength has been its "ability to deal with online customers in a way that makes them happy and sells them other products as well."

Citi, he said, can bring its expertise to improve Egg's less-than-impressive lending record and to provide new products, including checking accounts and investments such as mutual funds.

At the same time, Banga said, Citi could apply what it learns from the Egg model to its Internet operations in other countries, the AP reports.

Egg has been a drag on Prudential earnings since 2002, when it expanded in France. In 2004, Egg closed the French unit and sold its French savings and brokerage unit to ING Groep NV. The unsecured lending division was sold to Banque Accord. Egg was created by Prudential as one of the first Internet banks in October 1998, Bloomberg reports.

Tucker in December 2005 agreed to buy the 22 percent of Egg the company didn't already own after attempts by his predecessor Jonathan Bloomer to sell the business failed. Prudential paid 211.1 million pounds for the stake, valuing the entire company at 973 million pounds. Tucker also dismissed an offer for Egg in December from an unidentified suitor because it wasn't in “shareholders' interests,” the company said at the time.

“I'm broadly in favor of the deal, though I'm not sure it's a great price,'' said David Bradbury who helps manage $13 billion including Prudential stock at Canada Life in London. “It will put some money back to finance the business.

Source: agencies

Prepared by Alexander Timoshik

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Author`s name Alex Naumov