Saturday, September 09, 2000

Citigroup purchase reveals big lender

The Associated Press and The Cincinnati Enquirer

        NEW YORK — Millions of Americans own credit cards issued by such well known companies as Texaco, Radio Shack and Office Depot.

        It's a safe bet, however, that few of those card holders were familiar with Associates First Capital, the giant lending company operating comfortably in the background of those household names.

        Until this past week, that is, when financial services conglomerate Citigroup agreed to pay a huge $30 billion to acquire the Irving, Texas-based consumer and commercial finance company.

        The deal was the fourth largest U.S. acquisition this year, and the first not to involve big-name technology companies, according to CommScan, a New York financial data company.

        Nonetheless, Citigroup was willing to pay such a hefty price because, despite operating in relative anonymity, Associates First Capital is the largest publicly traded finance company in the United States and the fifth-largest consumer finance company in Japan.

        Locally, Citigroup will pick up seven offices that are part of Associates First Capital — five Associates Financial Services offices in Fairfield, Hamilton, Eastgate, Sharonville and Anderson Township, as well as two in Cold Spring and Florence in Northern Kentucky. Those offices, which employ about five people each, primarily offer mortgage and consumer-lending services to individuals.

        Those offices would join about 15 consumer-finance offices Citigroup operates locally under the CitiFinancial name.

        Formed in 1918 to help finance Ford Model T's, Associates First is a market leader in each of its many business lines, including issuing credit cards, providing home equity and mortgage loans, and leasing trucks and heavy equipment.

        A typical consumer might interact with Associates First in a variety of ways.

        Rural Iowans, for example, might head to the local Tractor Supply outlet in search of an expensive piece of farm equipment. A financing deal would likely be arranged so the farmer could pay off Tractor Supply over time. The farmer might also be issued a Tractor Supply credit card for future purchases.

        The financial details of both the long-term finance agreement and future credit-card transactions would be handled by Associates First Capital.

        “The customer probably has no idea that Associates First is involved,” said Joe Bruyer, who manages a Tractor Supply store in Council Bluffs, Iowa.

        The same is probably true of Texaco, Radio Shack or Home Depot cardholders.

        In fact, 80 percent of Associates First's credit-card business is done through partnerships with retailers that deal directly with consumers, said company spokesman David Sandor.

        “The Associates brand is not necessarily front and center. It's usually the partner's name that the consumer sees,” Mr. Sandor said. “But if you're in the oil business, you're probably most competent in matters dealing with energy, so many companies prefer to outsource to organizations like the Associates that specialize in consumer finance.”

        Millions of other consumers deal more directly with Associates First. A young couple, for instance, might obtain a home equity loan through Associates, and an independent trucker might rent a tractor-trailer through the company's heavy-equipment leasing business.

        “By definition, Associates First isn't trying to be a household name,” said Moshe Orenbuch, an analyst at Donaldson Lufkin & Jenrette in New York.

        Apparently, it doesn't need to be. The company is expected to have about $1.7 billion in profits this year from its global operations, which include 2,750 offices in the United States and 13 other countries. In 1999, Associates earned $1.49 billion on revenue of $12.1 billion.

        The acquisition by Citigroup was universally praised by analysts on the basis that a merger will only serve to strengthen two already powerful entities. Moreover, because the companies have considerable overlap, especially in their consumer finance units, duplicated services can be eliminated at a cost savings to the combined company.


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