Citigroup (C) Plans to Enter Private Credit in Early 2024
Citigroup Inc. C intends to enter the direct lending space by early January next year, in pursuit of identifying and embracing new opportunities. This was reported by Bloomberg.
According to a source familiar with the matter, “The initiative would complement the bank’s existing broadly syndicated leveraged finance business”. C is expected to associate with one or more partners as it would aid in providing the necessary capital for giving loans.
The potential borrowers would choose a suitable option from various alternatives provided by Citigroup like a high-yield bond, leveraged loan or private credit option. Per a source familiar with the matter, “The bank wants to be ready for a fresh wave of buyout deals as private equity firms eventually have to sell existing portfolio companies to pay back investors”.
By creating a bridge between customers and third-party debt financing, Citigroup is expected to earn fee income from such transactions. The bank could diversify revenue sources by providing ancillary services to such customers like cash management or hedging strategies.
This opportunity will assist Citigroup to establish its foothold in the lucrative private credit market. Per Morgan Stanley’s private credit outlook quoting Bloomberg’s data as on January 2023, the size of the market in the country was approximately $1.4 trillion and projected to reach $2.3 trillion by 2027.
Apart from grabbing such opportunities, Citigroup has been emphasizing growth in core businesses by shrinking international operations. The company remains on track to exit consumer banking business in several international markets, and focus on growth in wealth management and personal banking space.
In line with this strategy, this week, it announced the completion of sale and full migration of its Indonesia consumer businesses to UOB Indonesia. The sale includes retail banking, credit card and unsecured lending businesses, and the transfer of employees.
Citigroup’s shares have lost 1.9% in the past six months against the industry’s 7.1% growth.
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C presently carries a Zacks Rank #3 (Hold).
Stocks to Consider
A couple of better-ranked stocks from the banking space are JPMorgan Chase & Co. JPM and Fifth Third Bancorp FITB.
JPM’s earnings estimates for 2023 have been revised 1.1% upward over the past 30 days. In the past six months, JPMorgan’s shares have gained 12.4%. Currently, it sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Earnings estimates for FITB have been revised 1% upward for 2023 in the past 30 days. Shares of Fifth Third Bancorp have rallied 5.8% in the past six months. The company currently carries a Zacks Rank #2 (Buy).
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JPMorgan Chase & Co. (JPM) : Free Stock Analysis Report
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Fifth Third Bancorp (FITB) : Free Stock Analysis Report