Citigroup has struck a $3bn deal to sell an interest in a Chinese lender it took after a takeover battle a decade ago, joining a retreat by western…

Citigroup has struck a $3bn deal to sell an interest in a Chinese lender it took after a takeover battle a decade ago, joining a retreat by western banks from investments China’s financial institutions

The New York-based bank’s agreement to sell its 20 per cent holding in Guangfa to China Life Insurance for Rmb19.7bn is the latest sign that tougher regulations imposed since the financial crisis are encouraging lenders to shed their holdings in other banks. Several of Citi’s rivals have struck similar deals to part with Chinese assets

Citi said the sale of the stake would allow it to focus on expanding through its own network in the country, where it employs more than 8,000 people in 13 cities

“It just was a matter of getting the right price and finding the right buyer,” said Jeffery Harte, analyst at Sandler O’Neill & Partners. “The trouble with stakes in financials is they’re penalised under regulatory capital rules.”

Citi took the stake for $620m in 2006 during a wave of foreign investment in China’s lenders. It led a consortium that fought a long campaign to take control of Guangfa, the former Guangdong Development bank focused on the industrial heartland of southern China

Challenges with Guangfa became evident in 2009 when it was hit by a corruption scandal. Two senior executives at the Chinese bank were detained. The incident highlighted how foreign banks with stakes in Chinese financial institutions have struggled to influence management

Chinese authorities have restricted the expansion of foreign banks. In recent years, the total assets of foreign banks in China has fallen to below 2 per cent of the country’s total bank assets

Francisco Aristeguieta, head of Citi’s Asia-Pacific arm, said China remained “one of our highest-priority markets around the world”, adding: “This transaction is consistent with the simplification of Citi and allows us to focus our resources in China on growing our core franchise further.”

The deal follows an aborted push to float Guangfa on the stock market. A high bad debt ratio spoilt its prospects

A person close to the transaction said that the investment had generated about $2bn in profits over the past decade but because it was carried at book value would not be material to earnings. The deal is expected to close in the second half of this year

UBS was the first to dump an investment in a Chinese bank, selling its 3.4bn shares in Bank of China for $835m in 2009. In 2013, Goldman Sachs sold about $1bn worth of shares in Industrial and Commercial Bank of China. Later that year, Bank of America Corp sold its remaining shares in China Construction Bank for $1.47bn

HSBC still holds on to the 20 per cent of Bank of Communications that it bought for $1.7bn in 2004, in what was the first foreign investment in a Chinese bank