Citigroup Inc. said Friday it is selling its student loan business and about $32 billion in related assets to Discover Financial Services and the student lender Sallie Mae, Citi's latest move to focus on its core consumer banking business.
The big banking company has been looking for a buyer for its 80 percent stake in the Student Loan Corp. for some time as it refocuses it operations. Citi was one of the hardest hit banks by the recession and credit crisis.
Citigroup Inc. said Friday it will take a loss of about $500 million on the deal in this year's third quarter.
Discover has agreed to pay $600 million for the Citi stake in the Student Loan Corp. and will also acquire $4.2 billion of private student loans.
Sallie Mae will get $28 billion of assets, adding another 1.3 million new customers.
The complex deal comes amid rapid change in the student loan market, after a law this year consolidated the federal student loan program and largely cut private lenders out of the process. By making loans directly, and ending federal guarantees of private student loans, the government hopes to save money. That has left private lenders seeking alternatives to making loans, and trying to sustain their business by acting as servicers collecting payments on loans the government makes.
New York-based Citi, meanwhile, has been unraveling the one-stop financial services marketplace model it created in the late 1990s. It split its noncore assets from its primary operations like consumer banking and is now selling those assets it doesn't consider vital to its business.
Citi split itself into two parts last year — Citicorp and Citi Holdings, the division holding riskier assets including the mortgage-backed securities that undermined the bank and other financial institutions.
Pandit said Friday that the transactions involving Stamford, Conn.-based Student Loan Corp. will leave total assets in Citi Holdings at less than 20 percent of the parent company's balance sheet, as of year-end.
Pandit said Citi is "very pleased with the progress we've made and the momentum we have in executing our strategy."
The transactions are subject to regulatory clearance, approval from Student Loan Corp.'s shareholders, and other closing conditions, and are expected to be completed by year's end.
Discover, provider of Discover payment cards, will acquire Student Loan Corp. for $600 million, or $30 per share. Separately, and before that transaction closes, Student Loan will sell $28 billion in student loan assets to Sallie Mae.
Meanwhile, Citi will buy about $8.7 billion of assets from Student Loan Corp. The bank said it will "explore opportunities to reduce these assets over time."
Student Loan Corp. also will sell $4.7 billion in federal student loans to the U.S. Department of Education.
Sallie Mae CEO and Vice Chairman Albert Lord said the opportunity to acquire Student Loan Corp. assets "fits well with our servicing scale and expertise."
After the transaction, Sallie Mae will manage or service about $200 billion in federal student loans.
Sallie Mae, based in Reston, Va., is the nation's largest student lender, formally known as SLM Corp. It has been restructuring, including slashing jobs, as it responds to the new federal law and the changes in the government student loan business.
Discover, based in Riverwoods, Ill., will end up with $4.2 billion of student loans and related assets at an 8.5 percent discount, along with $3.4 billion of Student Loan's existing debt funding. The amount Discover will pay for the student loans is subject to a post-closing price adjustment between Discover and Citi.
In midday trading, Student Loan Corp. shares surged $8.67, or 41 percent, to $29.82 — slightly below the $30 price per share that Discover is paying in the transaction.
Shares of Citi rose a penny to $3.98, while Sallie Mae shares rose 49 cents, or 4.4 percent, to $11.72, and Discover shares slipped 2 cents to $15.77.
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