Citigroup to buy 2 portfolios

NEW YORK -- Citigroup Inc., the nation's largest financial institution, said Thursday it was buying the $6.6 billion credit card portfolios of Federated Department Stores Inc. and May Department Stores Inc. and will manage them jointly with Federated.

Citigroup will pay an 11.5 percent premium -- or about $760 million -- for the portfolios, which together have some 17 million active accounts.

Citigroup has been building its credit card business through acquisitions in recent years, including the 2003 purchases of the portfolios of Sears, Roebuck & Co. and The Home Depot Inc. There are few major private-label portfolios left on the market, which has pushed up acquisition costs.

The deal is expected to close in the third quarter, Citigroup said in its announcement.

Even before the latest transaction, New York-based Citigroup had the nation's largest card portfolio with some 140 million accounts worldwide.

Federated brings both private-label cardholders as well as Visa- branded cardholders who shop at its Macy's, Bloomingdale's and other department stores.

Citigroup shares fell a penny to close at $47.71 in Thursday trading on the New York Stock Exchange, while Federated shares advanced 65 cents, or nearly 1 percent, to $68.35 on the Big Board.

Steven J. Freiberg, chairman and chief executive officer of Citi Cards NA, told The Associated Press that the deal "continues to improve our leadership position in private-label cards."

He said that credit card partnerships have been profitable for both parties because the retailers are compensated for issuing new cards, while the bank's earnings are boosted by higher card transaction volumes as well as interest and fees that are collected.

According to the announcement, Citigroup initially will acquire about $3.2 billion in receivables managed directly by Federated. A portion of those proceeds will be used to pay off about $1.2 billion of outstanding asset-backed se-curities.

An additional $1.2 billion of Federated's receivables currently held by General Electric Capital Corp. will be transferred to Citigroup in May 2006, the announcement said.

Following Federated's merger with May, which is scheduled for completion in the third quarter, Citigroup will acquire May's $2.2 billion credit card portfolio. That portion of the deal is to be completed within 12 months of the Federated-May closing.

In a separate statement, Federated said it expects after-tax proceeds of about $4.5 billion from the sale, which it plans to use to fund its $11 billion buyout of May or repay acquisition-related debt and other debt.

The agreement provides for future payments based on credit sales and other performance metrics of the portfolio, Federated added.

Contributing: Eileen Powell

Copyright C 2005 Deseret News Publishing Co.
Provided by ProQuest Information and Learning Company. All rights Reserved.