Citi, HSBC among banks considering sale of units

Citi, HSBC among banks considering sale of units
They turn to asset sales to generate immediate cash as credit woes persist

NEW YORK – UNITED States and European banks including Citigroup and HSBC Holdings are mulling over sales of parts of their businesses in a nod to crunch times ahead, the Wall Street Journal reported on its website.

While Citigroup may shed or shut several of its mid-size units, HSBC could exit all or parts of its US$13 billion (S$18.9 billion) auto finance arm, said the paper yesterday, citing unnamed sources.

They estimate that Citigroup could dispose of as much as US$12 billion worth of what are considered non-critical assets. These include Student Loan Corporation; its North American auto lending business; its 24 per cent stake in Brazilian credit card company Redecard; and its Japanese consumer finance business.

Talk of the potential moves comes days after Merrill Lynch announced that it would sell most of its commercial-lending business to General Electric for US$1.3 billion. Morgan Stanley pocketed more than US$250 million last month by selling a slice of its

MSCI investment-analysis unit in a public offering.

‘I think we are going to see a real wave of these coming through in the first half of next year,’ said Morgan Stanley banking analyst Huw van Steenis.

Buyers could be hard to find in an environment where many financial companies are in trouble but analysts said the motivation to sell is strong, said the Journal.

This is because asset sales generate quick cash at a time when banks are likely to face persistent difficulties in borrowing money.

Rates at which banks lend to one another are still prohibitively high because of lingering worries about further losses from US sub- prime mortgage investments, it added. Other sources of funds, such as commercial paper, remain frozen or too expensive.

Several of the world’s largest banks have recently sold multibillion-dollar stakes to state-owned Asian and Middle Eastern investors to boost their capital.

But as banks increasingly take onto their balance sheets assets that had been held off-balance, their capital needs have grown.

In a report this month, Goldman Sachs estimated that US$475 billion of extra assets had been moved to bank balance sheets since the credit crunch sped up earlier this year, said the Journal.

Changes in leadership at Citigroup and HSBC also increased the likelihood of sales, it added. Citigroup recently installed Mr Vikram Pandit as its new chief executive, while Mr Brendan McDonagh took over in February as head of HSBC’s US consumer unit, HSBC Finance Corp, after the unit suffered heavy losses on investments in US home loans.