There's no denying that the competition among financial firms continues to heat up following the financial crisis. But Citigroup (C 1.14%) is playing up one of its biggest advantages -- namely its huge international footprint -- to drum up a bidding war between competing insurers. By offering up some primo real estate, Citigroup has the five insurers scrambling over each other to pay out the big bucks.
Location, location, location
Specifically, Citigroup is offering the rights to have an insurer's products offered to its 34 million retail customers through the 600 bank locations it operates in China. The People's Republic still remains one of the big targets for international companies looking for growth opportunities, as the country's growth topped out at 7.8% during the third quarter. Though this is certainly a decline from the years of double-digit growth, China is still outpacing most of the developed world, especially the U.S., where third-quarter growth was less than half of China's -- at 3.6%.
China's drop in growth may be a result of the government's intentions on restructuring the nation toward a consuming-focused economy, versus the traditionally seen exporting and investing one. That being said, the $8.5 trillion economy offers financial firms a lot of exposure to a growing middle class with both the need and means to buy both insurance and retirement products.
The players
Citigroup may only pick one winner, but a group of five insurers are fighting tooth and nail to come out on top. Among those bidding are MetLife (MET 1.63%), Britain's Prudential plc (PUK 0.36%), Canada's Manulife Financial Corp. (MFC 0.72%), AIA Group Ltd, and the FWD Group, which is owned by Hong Kong tycoon Richard Li.
Conspicuously absent from the pool of bidder is American International Group (AIG 1.85%), which sold its remaining stake of AIA Group back in December 2012. The reason may have something to do with AIG's investment in the PICC Group, where it has focused its growth in life and retirement products, with expansion to other insurance products possible in the future.
The terms
With $10 billion in revenue over the next 15 years on the line, Citigroup is requiring an exclusivity fee of $1.5 billion to $2 billion for the deal. Over the course of the deal, the revenue will be split between the winner and Citigroup. And though it's likely that only one bidder will win the rights to Citigroup's offering, the deal does cover 14 markets, so the possibility of a small share for a second bidder is reasonable.
The winner
No matter which bidder ends up inking the deal, Citigroup is the real winner, here. Not only will it get a flat fee up front, but the split of sales allows the bank to reap in the rewards of products it wouldn't normally have access to. In fact, since the bank's branches will be offering both the traditional bank products and the new insurance products, Citigroup could find that the cross-selling boosts its own revenue generation. With the Chinese markets already producing 15% of Citigroup's revenues in its Asian division, this is a key driver to the bank's international success.
Overall, this is a really smart deal for Citigroup to offer, with plenty of benefits for itself to enjoy down the line.
