Spain's Popular circles Citi's local bank in market shake-up

A man walks past a branch of Spanish Banco Popular bank in Madrid
A man walks past a branch of Spanish Banco Popular bank in Madrid April 30, 2013. REUTERS/Susana Vera

MADRID (Reuters) - Banco Popular said on Friday it was in talks to buy Citigroup's retail banking and credit card business in Spain, where foreign players have struggled to compete with dominant local banks after a deep financial crisis.

Popular, Spain's fifth-biggest bank by stock market value, did not provide any financial details of its discussions with the U.S. lender. The deal would include 45 retail bank offices and at least 300 staff, a source familiar with the talks said.

The source added that the talks could conclude in a month or two.

Banks worldwide have been pulling out of struggling businesses, or operations that are no longer key to their strategy, as they cut costs and bulk up capital to meet regulators' tougher demands.

Spain has been a particularly tough market for international lenders in recent years amid a wave of mergers of domestic banks and a prolonged economic downturn, which has hit earnings.

Even local players have been shutting or trying to sell branches, after a 2008 property crash halted their expansion and left some short of capital and in need of bail-outs.

Britain's Barclays has also been mulling a potential sale of its Spanish retail banking business, newspapers El Pais and Expansion reported on Friday.

They said the bank has been contacting potential advisers such as Goldman Sachs , Bank of America Merrill Lynch and Morgan Stanley to analyse how much a sale would fetch, or spin off packages of mortgages.

Barclays declined to comment, as did the investment banks. Barclays has been restructuring its Spanish business to focus more on wealthy clients, a segment in which it hopes it will be easier to compete than in the broader mortgage and consumer lending market.

It shut at least 161 branches in Spain last year as well as offices in Italy, Portugal and France.

Several sources at the bank and in the market played down the chances Barclays would sell its entire Spanish business, however, adding it had long been rumoured but would make no sense now unless it could fetch an attractive price.

"Barclays has had regular contacts in recent years with banks to review its options in Spain," one banking source said, while another said there was nothing imminent in the works.

(Reporting by Tracy Rucinski, Robert Hetz, Sarah White and Jesus Aguado; Editing by David Holmes)