How times have changed.
Subprime lender Springleaf Holdings has agreed to spend $4.25 billion in cash to buy Citigroup’s subprime consumer finance arm, a long-troubled lending division Citi executives (including current CEO Mike Corbat) have spent years shopping around at much lower prices.
Back in 2009, Citi executives were hoping to sell the subprime loan unit for $1 billion. At the time, the massive bank was beguiled by a financial crisis that drove its stock price below $1. To save itself, Citi divided the bank into a”good bank” and a “bad bank,” dumping what was then called CitiFinancial into a $700 billion pool of poor-performing businesses and unwanted assets it intended to sell or wind down.
Even a $1 billion sticker price seemed lofty for Citi’s consumer finance arm back in 2009. By comparison, private equity firm Fortress Investment Group had just scooped up an 80% stake in its competitor, AIG lending unit American General, for $200 million. Fortress later changed the company’s name to Springleaf and took it public in 2013.
But the tide has turned with an improving economy and a rebound in subprime lending. As traditional lenders like Citi have tightened lending standards and sought out wealthier clients, more borrowers with feebler credit have moved to non-bank financial institutions for mortgages, car loans, and small business financing. Shares of Springleaf have doubled since its IPO. And a proposed IPO for Citi’s lending business, now called OneMain, generated interest from suitors and likely drove up the deal price.
As with any investment, timing is everything.