Citigroup Inc. (NYSE:C) is set to make its entry into the direct lending space by early January 2024, marking a strategic move to explore and capitalize on new opportunities, as reported by Bloomberg.
According to a source familiar with the matter, this initiative aims to complement Citigroup’s existing broadly syndicated leveraged finance business. The bank plans to collaborate with one or more partners to provide the necessary capital for extending loans.
Potential borrowers will have the flexibility to choose from various options offered by Citigroup, including high-yield bonds, leveraged loans, or private credit alternatives. The bank is gearing up for a potential surge in buyout deals, anticipating that private equity firms will eventually need to sell existing portfolio companies to repay investors.
By bridging the gap between customers and third-party debt financing, Citigroup aims to generate fee income from these transactions. Additionally, the bank could diversify its revenue streams by offering ancillary services such as cash management and hedging strategies to customers involved in private credit transactions.
This strategic move positions Citigroup to tap into the lucrative private credit market, aligning with Morgan Stanley’s private credit outlook, which estimated the market size in the U.S. at approximately $1.4 trillion as of January 2023. The market is projected to reach $2.3 trillion by 2027.
In parallel with its entry into private credit, Citigroup continues to focus on strengthening its core businesses by reducing its international operations. The company is executing plans to exit consumer banking operations in several international markets and concentrate on growth opportunities in wealth management and personal banking.
As part of this strategy, Citigroup recently announced the successful completion of the sale and full migration of its Indonesian consumer businesses to UOB Indonesia. The sale encompasses retail banking, credit card operations, unsecured lending businesses, and the transfer of associated employees.
While Citigroup’s shares have faced a decline of 1.9% in the past six months, the move into the private credit market underscores the bank’s commitment to strategic expansion and revenue diversification in evolving financial landscapes.
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