NU Online News Service, May 12, 2004, 6:03 p.m. EDT – Principal Financial Group Inc., Des Moines, Iowa, has agreed to sell its 68-year-old mortgage banking unit to Citigroup Inc., New York, for $1.3 billion.[@@]

Principal will get $290 million more than the net book value of the Principal Residential Mortgage Inc. unit, and the deal will include the transfer of $970 million in liabilities, Principal says.

Principal’s board already has approved the deal. The company hopes to get the regulatory approvals it needs to complete the deal by Sept. 30.

Principal Residential reported $29 million in net income for the first quarter on $256 million in revenue. It ended 2003 with 958,000 loans on its books and a total loan principal balance of $119 billion.

Most of the loans are conventional fixed-rate prime mortgages, Citigroup says.

Although Principal Residential is still profitable, and Principal bills itself as a company that started out in 1936 “making farm and ranch loans on horseback,” an industrywide slump in mortgage lending has cut the mortgage unit’s revenue. Principal says it now wants to focus on selling retirement plans and employee benefits to small and midsize companies.

Principal hopes to invest $710 million in after-tax net proceeds from the deal in “strategic acquisitions” as well as in expansion of its remaining operations, the company says.

“Principal Residential Mortgage has been an important part of our history, and we greatly value the contributions made by the people and the business,” says Principal Chairman J. Barry Griswell. “While this was not an easy decision to make, we are now better-positioned to focus our resources on our core growth businesses, and to achieve our longer-term financial objectives.”

Carl Levinson, chairman of Citigroup’s CitiMortgage Inc. unit, says the Principal Residential deal will help his company reach its goal of expanding its mortgage loan servicing portfolio and customer base.