NEW YORK Citigroup to buy $30B credit portfolio of Sears, Roebuck

Sears will realize $6 billion from the sale.
NEW YORK (AP) -- Citigroup is buying the credit card business of Sears, Roebuck & amp; Co. in a $3 billion deal that allows Sears to return to its retailing roots and further bolsters Citigroup's position in the credit card industry.
The sale of Sears' $30 billion credit portfolio will put Citigroup -- already the nation's largest financial institution -- ahead of MBNA in total managed debt. The companies said the deal, announced Tuesday, is expected to close by year's end.
Sears, which is based in Hoffman Estates, Ill., will actually realize $6 billion from the sale of its portfolio, the country's eighth-largest. Besides the $3 billion cash from Citigroup, Sears will retain $3 billion in capital it had in the portfolio as a reserve against nonpaying accounts.
The sale also provides Sears an influx of badly needed cash, but deprives it of an important, stable source of income at a time when the retail industry is struggling.
Sears' credit card business has 59 million accounts, including 25 million that are active.
The portfolio would raise Citigroup's total managed debt to nearly $169 billion. The next largest is MBNA's $107 billion portfolio. The Sears portfolio is made up of 58 percent Sears cards and 42 percent MasterCards.
Sears said it would use the $4.5 billion after-tax proceeds to reduce debt, fund general operations and to return cash to shareholders.
The deal must be approved by federal and state regulators.
S & amp;P downgrades debt
Shortly after the transaction was announced, the Standard & amp; Poor's credit agency downgraded Sears' debt to BBB from BBB-plus.
"The downgrade reflects the absence of this historically important foundation to the credit rating and its operating income [approximately $1.5 billion in 2002], and a greater reliance on a retailing business that has a very challenging future," S & amp;P analyst Gerald Hirschberg wrote.
Citigroup said the purchase also includes Sears' Financial Products business and credit card facilities, with about 8,300 employees.
Robert B. Willumstad, president of Citigroup and chairman and chief executive of Citigroup's Global Consumer Group, said during a conference call with analysts that the purchase would give Citigroup greater access to the Hispanic market, which the New York bank has sought to woo.
"Sears is a unique franchise, as 60 percent of U.S. households are Sears customers, including a significant Hispanic customer base -- a key focus of our consumer business marketing efforts," he said.
Focus on retail
Sears said in March it was looking to sell the credit card division to focus on its retail operations. A company spokesman would not identify any other bidders.
Sears said that as part of the transaction, Sears and Citigroup will enter into a marketing and servicing alliance with an initial term of 10 years.
Under the alliance, Citigroup will provide credit and customer service benefits to Sears' proprietary and Gold MasterCard holders, Sears said.