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Citigroup to buy Prudential's Egg bank
2007-01-29
Citigroup Inc. announced Monday that it was buying the world's largest stand-alone online bank, London-based Egg Banking PLC, to expand its financial operations in Britain and its Internet expertise worldwide. Citigroup, which is headquartered in New York, said it would pay British insurer Prudential PLC $1.13 billion in cash for the bank. The deal is subject to regulatory approval and is expected to close by the end of April. The combination of Egg and Citigroup's British consumer banking and finance operations will create a financial services provider with over 4 million customers and more than quadruple Citigroup's 800,000 British credit card base. The move is in line with two recent trends at Citigroup, the largest bank by assets in the United States. Chief Executive Charles Prince has eschewed blockbuster deals and, instead, focused on targeted and strategic acquisitions such as the Egg Banking purchase. In December, Citigroup announced it was buying Quilter, a wealth management unit in the United Kingdom, from Morgan Stanley; at the same time, it bought a Central American banking company in a stock-and-cash deal. 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. "I would like to take to as many places as I can whatever I can learn from them," he said. The transaction, which is worth 575 million British pounds, will probably boost earnings in the first year, Citigroup said in a statement. Egg was founded in 1998, and it currently has more than 3 million customers. Its products and services including online bill paying, credit cards, personal loans, savings accounts, mortgages and insurance. Citigroup's British consumer business now serves more than 1 million customers, primarily in the wealth management and near prime lending markets, and offers current, savings, and foreign currency accounts, credit cards, investments, offshore banking, personal loans, and mortgages. Citi currently has just five retail bank branches and 100 consumer finance branches in Britain. Banga said that the increased online customer base that comes with Egg means "you'll see me building a few more branches there." Prudential said the sale will enhance its earnings per share this year and the proceeds will be used to reduce net debt. Prudential also said it has reached a preliminary agreement with Citigroup on providing life and pensions products to Egg's customer base for a five-year period. "The sale of Egg to Citigroup realizes greater value for our shareholders than retaining the business within the group," Prudential Chief Executive Mark Tucker said in a statement. "Citigroup is the largest credit card issuer in the world and sees enormous opportunities to develop Egg's business in the U.K." Prudential PLC is not affiliated with Prudential Financial Inc. of Newark, N.J. Shares in Prudential fell 0.6 percent to close at 698 pence ($13.68) on the London Stock Exchange. Citigroup shares slipped 61 cents, or 1.12 percent, to close at $54.06 on the New York Stock Exchange. Citigroup's purchase of Egg comes as online banks are boosting interest rates to attract deposits from people who are getting year-end bonuses or expect tax refunds. HSBC Bank USA said Sunday it was raising the interest rate of its online savings account to 6 percent -- topping its competitors. UnitedBank of Miami Lakes, Fla., offers a 5.35 percent annual percentage yield, while Citibank Direct is at 5 percent. Egg pays 5.25 percent interest on its online savings accounts, said a company spokeswoman. ING offers an annual equivalent rate of 4.75 percent in Britain, according to its Web site. Egg charges British credit card customers an annual interest rate of 16.9 percent. That compares with the 15.9 percent charged by MBNA Corp. of the U.S. and Britain's Lloyds TSB Group PLC. ___ On the Net: http://www.egg.com http://www.citigroup.com
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