Britain’s Prudential announced a surprising GBP 575 million ($1.1 billion) cash deal to sell loss-making Internet bank Egg to Citigroup. The sale price is roughly half the value of the bank when Prudential bought out minority shareholders last year. Citigroup, which has a modest retail presence in Britain, said Egg would boost its UK business to four times its current size and was confident it could use “significant synergies” to extract value from the bank, returning it to profit.
Ralph Silva, a senior analyst at TowerGroup, notes that while Egg has had great success in attracting and retaining online customers in the UK, the company has faced a long string of operating losses despite continually expanding its product and customer base.
By acquiring Egg, Citibank is looking to leverage a marquee brand, broad product base, relatively low cost of funds, and Internet sales and service capabilities to make the UK operation profitable, says Silva. Based on the success of Citibank’s own US-based Internet bank, TowerGroup believes that the company could very likely replicate their results in the UK as well.
Tower Group also note that Citibank has had a poor track record of retail operations in Europe (closing its French operations a few months ago) and that the Egg deal will only work if Citi allows Egg to be Egg.