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Citigroup to sell OneMain Financial to Springleaf Holdings

Citigroup plans to sell Baltimore-based OneMain Financial.

Baltimore will lose the headquarters of OneMain Financial Holdings after Citigroup agreed to sell the personal finance company to Springleaf Holdings in a $4.25 billion deal.

The sale announced Tuesday would create one of the nation's largest consumer finance companies with nearly 2,000 branches offering loans to so-called subprime borrowers with less than stellar credit ratings.

While Evansville, Ind.-based Springleaf plans to run the combined company from its executive office in Connecticut, it intends to retain a large presence in Baltimore.

"Baltimore will remain a significant corporate center for the combined company," said Citigroup spokesman Mark Costiglio, adding that substantially all of its roughly 550 Baltimore-based employees are expected to stay in the city.

OneMain has its corporate headquarters at 300 St. Paul Place but recently signed a lease to move to a smaller space in the Legg Mason tower in Harbor East in the spring.

Citigroup has been trying to sell OneMain since it reorganized its businesses in the wake of the financial crisis, moving away from its strategy of trying to become a financial supermarket serving all of the financial needs of individual and business customers.

OneMain traces its roots to Commercial Credit, a business formed in Baltimore in 1912. After it was acquired by Sanford I. "Sandy" Weill in 1986, Commercial Credit evolved through a series of mergers into the Travelers Group, which in turn merged with the old Citicorp in 1998 to form Citigroup.

"This is a transaction that has been in our sights for quite some time, because this is a company that we have so respected for a host of reasons," Springleaf CEO Jay Levine said in a conference call with investors Tuesday morning. "I think we've looked at OneMain ... and saw the immense profitability, the benefits of scale they had achieved, and really in the last few months as we've gotten to know the management team of the company better, have really come to fully respect what they have built, and really have come to see what the power of the combination can be."

The sale is expected to close in the third quarter. Springleaf plans to assume the OneMain name and consolidate approximately 200 branches beginning in the middle of next year. The combined company would have 1,967 branches across 43 states.

OneMain Financial has about 12 branches in the Baltimore area, according to its website. Springleaf has none in Maryland.

The decision to relocate the headquarters will likely lead to some job losses in the city, said Steven Isberg, a professor of finance at the University of Baltimore's Merrick School of Business. That is especially true as relationships with firms such as car dealerships transfer to the new business and as lending becomes more automated, he said.

Brendan Sheehy, director of Fitch Ratings, said he does not expect to see immediate layoffs, but the companies will likely consolidate over time. He said he expects most of the layoffs to occur at the branch level as the firms consolidate overlapping branches.

"During the integration period, you probably want to have all hands on deck ... to make sure the transition is seamless, but over time you could see some cost savings through some synergy," he said.

In October, OneMain announced plans to move from its 300,000 square feet in 300 St. Paul Place to the Legg Mason tower in Harbor East, where the firm committed to an 11-year lease for 110,000 square feet. Citi and OneMain employees were expected to move this spring.

Bruce Matthai, senior managing director at DTZ, who worked on the deal for Harbor East Management Group, said the deal remains in place and he does not expect the sale, which was long anticipated, to significantly change those figures.

"I just can't imagine that would change since it was in everyone's thought process," he said. "It's a very positive commitment to Baltimore and to Harbor East," Matthai said of the lease.

In addition to Baltimore, Springleaf said it would retain a significant presence in Evansville as well as key operations in Wilmington, Del.; Chicago; London, Ky.; Mendota Heights, Minn.; Tempe, Ariz.; Fort Mill, S.C.; and Irving and Fort Worth, Texas.

Springleaf, which boasts about 2.5 million customers and "loans in an hour," will pay for the transaction in cash and $1 billion in lines of credit. Its shares surged in Tuesday trading, up $12.19 to $50.23.

"For the buyer, this is about market share," Isberg said. "This particular market has been shrinking somewhat, so here's a way for you to grow your business."

Fitch placed a negative ratings watch on Springleaf Holdings, citing the cash and debt used to finance the $4.25 billion deal, as well as the work it will take to integrate the two companies as a cause for concern.

Analysts who follow Citigroup welcomed the deal, though many had assumed that the profitable OneMain operation would fetch more when it sold. Last year, Citigroup considered selling OneMain in an initial public offering, according to documents filed with the Securities and Exchange Commission.

UBS Financial Services Inc. analysts wrote in a report that they had initially estimated that OneMain would sell for $5.9 billion to $7.2 billion if the company had gone the IPO route.

"Despite this, we are pleased to see this move forward and believe it shows Citi continuing to derisk and simplify its business," the UBS analysts wrote.

Shares of Citigroup Inc. rose 24 cents Tuesday to $3.73.

Citi said it will use part of the proceeds from the sale to retire certain funding that currently supports Citi Holdings. The sale, along with retirement of the related funding, are expected to result in a net addition to earnings before income taxes of about $1 billion.

The business "didn't fit our strategy," Citi CEO Michael Corbat said in a statement, though he acknowledged that OneMain "serves customers who deserve and need credit."

The Associated Press contributed to this article.

cwells@baltsun.com

nsherman@baltsun.com

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