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U.S. equity firms win bidding war for CitiFinancial Canada

This is an exterior view of Citigroup Center in New York, Tuesday, June 7, 2005.


Two U.S.-based private equity companies have won the bidding war for Citigroup Inc.'s Canadian subprime lender.

J.C. Flowers & Co. and Varde Partners will pay an undisclosed amount for high-risk lender CitiFinancial Canada, which has $2.5-billion in assets, 217 branches and 1,300 employees.

CitiFinancial offers unsecured personal loans at 27.99 per cent, mortgages at 10.35 per cent, as well as financial services to Canada's retailers. The lender has more than 250,000 Canadian clients, CitiGroup said.

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The Globe's Andrew Willis previously reported that the deal, which is subject to regulatory approvals, could be worth more than $400-million.

CitiFinancial was pursued by Ontario Teachers' Pension Plan and several private equity companies, which have been buying the consumer finance divisions spun off by U.S. lenders facing new regulations in the wake of the 2008 financial crisis.

In an interview, Flowers founder and chief executive officer J. Christopher Flowers said he was "delighted" to be investing in a "stable" country with reasonable growth prospects and a business culture he understands.

"Canada we see as a very attractive market, and we've looked at a number of deals in the past in Canada," Mr. Flowers said by phone. "This opportunity presented itself not too long ago [to] combine a company we thought was absolutely terrific with a market that we think is very attractive."

Canada's housing market avoided the U.S. bloodbath, but the rise in home prices has triggered warnings a rise in lending rates could spur a wave of mortgage defaults.

Mr. Flowers said his company, with offices in New York and London, is accustomed to the roller coaster of real estate markets, and he believes the Canadian investment is a good chance to diversify its holdings in other countries.

"Our company does a certain amount of mortgage lending, so our expectation is we would continue to be careful about looking at house prices in different markets that we serve," Mr. Flowers said. "The ups and downs of the real estate market in cities in Canada or Canada in general, this is the kind of thing that is present very frequently in the kind of investments that we make and we're quite used to dealing with that."

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For parent Citigroup, the sale is part of its plan to exit the subprime loan business, a sector that was partly blamed for the U.S. financial crisis, housing collapse and recession of 2007 to 2009.

Last year, it sold its U.S. consumer lender, OneMain Financial, for $4.25-billion (U.S.). In a statement, Citigroup said the CitiFinancial sale price was not material to its earnings.

Varde was founded in Minneapolis in 1993 and has offices around the world. J.C. Flowers was founded in 1998 and has invested $15-billion in 16 countries.

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