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Discover Deal Advances Citi's Asset Sale

Citigroup made further gains in divesting assets within Citi Holdings by agreeing on Friday to sell The Student Loan Corp., its indirect private student loan subsidiary, to Discover Financial Services.

Updated to include more details on the Discover transaction and refreshed stock prices.



) --


(C) - Get Citigroup Inc. Report

made further gains in divesting assets within Citi Holdings by agreeing on Friday to sell

The Student Loan Corp.


, its indirect private student loan subsidiary, to

Discover Financial Services

(DFS) - Get Discover Financial Services Report


Student Loan is 80% owned by Citigroup and 20% owned by public shareholders.

Discover will pay $600 million, or $30 per share, for Student Loan. The Riverwoods, Ill.-based credit card firm will acquire $4.2 billion of private student loans and related assets at an 8.5% discount and $3.4 billion of Student Loan's existing asset-backed securitization debt funding, it said. The deal is expected to provide earnings accretion of approximately 9 cents per share to Discover's earnings in 2011, it said in a separate release.

The transaction, along with the sale of certain securitized Federal Family Education Loan Program (FFELP) assets to

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SLM Corp.

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(Sallie Mae), will reduce Citi Holdings assets by $32 billion, or 70% of Citi's private student loans.

Additionally, Citibank, the company's retail banking operations will acquire $8.7 billion of the student loan assets and "will explore opportunities to reduce these assets over time," Citigroup said.

The remaining $4.7 billion in loans will be sold to the U.S. Department of Education, which was previously disclosed, it said.

Still Citi will take an after-tax loss on the sales of approximately $500 million for the quarter. Both transactions are expected to be completed by the end of the year.

CEO Vikram Pandit said that once the divestiture is completed, Citi Holdings' remaining assets will be less than 20% of Citigroup's total balance sheet assets.

"We are very pleased with the progress we've made and the momentum we have in executing our strategy," Pandit said in a statement.

It's been a slow process for Citigroup to filter out those businesses which it deemed as "non-core" and placed in the Citi Holdings entity in January 2009. It has had troubled selling some businesses, like


, which it decided to restructure in June in order to make it more appealing to buyers. Still the bank is making progress. One example was the successful initial public offering of Primerica this spring.

As of June 30, assets in Citi Holdings totaled $465 billion, down 44% since the first quarter of 2008, when those businesses deemed non-core peaked in assets. Citigroup reports third-quarter earnings on Monday, October 18.

Student Loan shares surged 41% to $29.86 following the news. Citigroup shares were trading marginally higher during the first hour of trading on Friday. The stock was up 0.4% to $3.99 on volume of approximately 171 million shares.

Discover, which will announce third-quarter earnings on Monday, saw its shares rise marginally by 0.4% to $15.86 on volume of 4.25 million shares.

--Written by Laurie Kulikowski in New York.

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Laurie Kulikowski


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