Citigroup is in the final stages of a deal to sell its OneMain consumer finance unit to subprime lender Springleaf for more than $4 billion, Reuters reported on Friday (Feb. 20).
The deal, if it goes through, would finally let Citi shed the storefront lender, which Citi has been trying to do for at least four years, according to the Wall Street Journal. In 2011, when Citi changed the name of the unit from CitiFinancial to OneMain, Citi considered selling the operation, but the bank feared that the lingering recession would mean the price would be too low and potential buyers (including Springleaf) would have trouble raising money for a deal.
OneMain also filed regulatory paperwork to go public in October 2014, the Journal said. Citi reportedly wants to unload the subprime finance unit along with other less-desirable assets in order to focus on high-end banking customers, and has considered bids from private equity firms as well as an IPO.
According to sources the two news sources didn’t name, while a price has been set, it may be two weeks before negotiations have hammered out all the contractual details for the deal. That would be in plenty of time for Springleaf to officially announce the deal when it reports its Q4 earnings on March 12. The deal may also fall apart, though both sides are reportedly happy with the price.
If it goes through, the deal would unite what are by far the two largest players in the subprime lending space. OneMain has more than 1,100 branches nationwide, while Springleaf has 830 branches in 26 states. Both companies also have online lending operations. Springleaf, which went public in 2013, is majority-owned by Fortress Investment Group and currently has a market cap of $4.4 billion, roughly what it will be paying for OneMain.
But the merged companies would also face a low-end lending scene that is in the process of significant upheaval. Payday lenders at the bottom of the lending ladder are under pressure from both state authorities and the federal Consumer Financial Protection Bureau. At the same time, the space is seeing the rise of marketplace lenders such as LendUp that focus on small loans to individuals that overlap the lower range of Springleaf’s and OneMain’s loans.