Principal Sells Mortgage Unit To Citigroup

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Principal Financial Group Inc. has agreed to sell its mortgage banking unit to Citigroup Inc., New York, for $1.3 billion.

The Des Moines insurers mortgage unit, Principal Residential Mortgage Inc., reported $29 million in net income for the first quarter on $256 million in revenue.

But the mortgage industry is cooling off, revenue at Principal Residential is down, and Principal Chairman J. Barry Griswell says selling the mortgage unit will help Principal focus on selling retirement plans and employee benefits to small and midsize companies.

“While this was not an easy decision to make, we are now better positioned to focus our resources on our core growth businesses,” Griswell says.

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

Carl Levinson, chairman of Citigroups CitiMortgage Inc. unit, says Citigroup is buying the Principal mortgage unit to expand its mortgage loan servicing portfolio and customer base.

Principal Residential ended 2003 with 1,450 employees, 958,000 loans on its books and a total loan principal balance of $119 billion.

Most of the loans on the books at Principal Residential are conventional fixed-rate, prime mortgages, Citigroup says.

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

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

Rating analysts at Standard & Poors Ratings Services, New York, and Fitch Ratings, New York, are giving the deal good reviews.

S&P is calling the mortgage business “nonstrategic” for Principal, and analysts at both S&P and Fitch agree that selling the unit will reduce Principals earnings volatility.


Reproduced from National Underwriter Edition, May 14, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.