NEW YORK (TheStreet) -- Springleaf Holdings (LEAF) - Get Report shares are up 34.07% to $51 in early market trading on Monday after the company announced that it had reached an agreement to purchase OneMain Financial Holdings from Citigroup (C) - Get Report for $4.25 billion in cash today.
The sale is part of Citigroup's restructuring plan to sell off unwanted assets and focus on aspects of its business with higher returns. The bank has been looking to sell OneMain Financial since 2011, according to Reuters.
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Springleaf, a subprime lender based in Evansville, IN, and OneMain, which provides personal same day loans, will have a combined 1,967 branches across 43 states following the merger.
Citigroup has been distancing itself from OneMain over the past few years as the company's portfolio accounted for just 5% of Citi's total assets last year, down from the 30% of assets that the company used to account for.
This is a calculated winding down of Citi's involvement in the high interest rate, low-income lending arena as what are known as "payday loans" have come under increased government scrutiny in recent years for what some regulators see as predatory behavior on patrons who do not understand the risks of a short term loan with high interest rates.
The possibility of legal action tied to the loans has played a part in Citi's decision to extricate itself from the low-income lending business as many regulators see subprime lending as one of the causes of the recent financial crisis.
"JPMorgan Chase (JPM) - Get Report, Bank of America (BAC) - Get Report and Citigroup racked up a cumulative $5.7 billion worth of legal charges in the fourth quarter of 2014 alone, and...Morgan Stanley just settled DoJ litigation for $2.6 billion," Jim Cramer wrote of the financial sector in last week's Weekly Roundup.
Citigroup shares are up 0.24% to $53.57 in trading.
TheStreet Ratings team rates SPRINGLEAF HOLDINGS INC as a Sell with a ratings score of D-. TheStreet Ratings Team has this to say about their recommendation:
"We rate SPRINGLEAF HOLDINGS INC (LEAF) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its generally high debt management risk and weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The debt-to-equity ratio is very high at 3.74 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company.
- Net operating cash flow has significantly decreased to -$18.88 million or 106.13% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- LEAF, with its decline in revenue, slightly underperformed the industry average of 7.4%. Since the same quarter one year prior, revenues fell by 16.5%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- This stock has increased by 41.50% over the past year, outperforming the rise in the S&P 500 Index during the same period. Despite the fact that the stock's value has already enjoyed nice gains in the past year, we feel that the risks surrounding an investment in this stock outweigh any potential future returns.
- SPRINGLEAF HOLDINGS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past year. We feel that this trend should continue. This trend suggests that the performance of the business is improving. During the past fiscal year, SPRINGLEAF HOLDINGS INC continued to lose money by earning -$0.18 versus -$1.94 in the prior year. This year, the market expects an improvement in earnings ($2.04 versus -$0.18).
- You can view the full analysis from the report here: LEAF Ratings Report