Zacks_Analysts' Blog : Berkshire in Race for Citi Unit? - Analyst Blog

Berkshire Hathaway Inc. (BRK.B) is said to be in race for the consumer lending unit of Citigroup Inc. (C), according to a Wall Street Journal report. Berkshire is a part of the bidding group comprising private-equity investment firm Centerbridge Capital Partners LLC and Leucadia National Corp. (LUK) and is said to be negotiating the deal.

Last Friday, Citigroup completed the rebranding of its entire U.S. full service network of 1,300 stores from CitiFinancial to OneMain Financial. The rebranding plan was announced last December. The rebranding gives the company an identity that better suits its image and activity. Citi is disposing of its non-core operations and CitiFinancial happens to be a part of that unit. The change in name is also viewed as a preparatory step toward achieving that end.

Citi intends to sell the unit to a well-capitalized company and Berkshire happens to be one. It already has consumer lending operations and can benefit substantially if it can win this deal.

Citigroup’s long-term strategy to shrink non-core assets and increase its fee-based business mix would improve its valuation over time. The divestiture of Citi Holdings, its legacy problem assets portfolio, is also on track. As a matter of fact, Citi has already sold a number of its non-core operations.

This run-off will ultimately improve the company’s risk profile and free up capital that it continues to invest in its core businesses. Citicorp, the company’s core business portfolio, also remains attractive. International business is gaining momentum and should support its earnings.

Yet, we believe that solid earnings at the company would remain elusive until its revenues experience a decent growth. Regulatory issues and sluggish economic recovery also remain concerns.

Citi shares currently retain the Zacks #3 Rank, which translates into a short-term Hold rating. The company also has a Neutral recommendation from us.