By Mark Jewell, AP Business Writer
BOSTON (AP) — Citigroup Inc. said Friday it is selling its student loan business and about $32 billion in related assets to Discover Financial Services and the student lender Sallie Mae, Citi's latest move to focus on its core consumer banking business.
The big banking company has been looking for a buyer for its 80% stake in the Student Loan Corp. for some time as it refocuses it operations. Citi was one of the hardest hit banks by the recession and credit crisis.
Citigroup Inc. said Friday it will take a loss of about $500 million on the deal in this year's third quarter.
Discover has agreed to pay $600 million for the Citi stake in the Student Loan Corp. and will also acquire $4.2 billion of private student loans.
Sallie Mae will get $28 billion of assets, adding another 1.3 million new customers.
The complex deal comes amid rapid change in the student loan market, after a law this year consolidated the federal student loan program and largely cut private lenders out of the process. By making loans directly, and ending federal guarantees of private student loans, the government hopes to save money. That has left private lenders seeking alternatives to making loans, and trying to sustain their business by acting as servicers collecting payments on loans the government makes.
New York-based Citi, meanwhile, has been unraveling the one-stop financial services marketplace model it created in the late 1990s. It split its noncore assets from its primary operations like consumer banking and is now selling those assets it doesn't consider vital to its business.
Citi split itself into two parts last year — Citicorp and Citi Holdings, the division holding riskier assets including the mortgage-backed securities that undermined the bank and other financial institutions.
Pandit said Friday that the transactions involving Stamford, Conn.-based Student Loan Corp. will leave total assets in Citi Holdings at less than 20% of the parent company's balance sheet, as of year-end.