Citigroup sells German business for $8 billion

FRANKFURT (Reuters) - CITIGROUP (C.NY) is selling its German retail business to France's Credit Mutuel for more than $8 billion as the biggest U.S. bank continues to grapple with the global markets crisis.

The struggling U.S. titan has lost more than $15 billion in the last six months as writedowns on high-risk mortgages and other toxic debt piled up to more than $45 billion, sapping the bank's capital base.

Citigroup said on Friday that it would pocket an after-tax gain of around $4 billion by selling the business and that this would lift its Tier 1 capital ratio, a key measure of a bank's financial health, by 60 basis points to 9.4 percent.

"This is another strategic step in our effort to reorganize Citi, strengthen our balance sheet, and put us squarely on the path to future growth," said Citi's chief executive Vikram Pandit.

Pandit, who became CEO in December, is selling the German business as Citigroup faces a further squeeze on capital with substantial additional writedowns due in the second quarter.

The bank's stock has been in freefall, tumbling two thirds over the last year to its lowest level in a decade.

Citigroup will sell its German business in a cash deal for 4.9 billion euros ($7.7 billion) plus 2008 earnings -- the business made a net profit of 365 million euros last year.

Citi in Germany, which makes most of its money from loans for everything from televisions to cars, contributed nearly 3 percent of 2006 global pretax profit at the bank, which has been roiled by market turmoil.

By abandoning the business -- called Citibank -- which was the core of its retail operations in Europe, the global financial services powerhouse is signaling a significant change of direction.

Citibank, which has handed out more than 10 billion euros of credit in Germany and has 3.2 million customers, is the country's biggest player in consumer lending with a market share of almost 7 percent. It also has a credit card business and an arm which advises well-heeled customers on investing.

Deutsche Bank , which is seeking to beef up its retail business as a counterbalance to its now depressed investment bank, had also bid for Citibank.

It ultimately lost out to Credit Mutuel, France's third-largest retail banking group.

Credit Mutuel said the buy would boost its European operations and give it knowhow in consumer loans.

In recent years, Credit Mutuel has branched out into Belgium, Luxembourg and Switzerland. This deal will give it a foothold in Europe's biggest country.

(Additional reporting by Sudip Kargupta; Editing by David Cowell)