Citigroup Inc., the biggest U.S. financial-services company, agreed to buy Prudential Plc's Egg Internet banking unit for 575 million pounds ($1.1 billion), quadrupling its credit card customers in Britain.

Citigroup, which will pay for Egg in cash, will gain about 2.9 million cardholders in the U.K., the New York-based company said today in a statement. The purchase, Citigroup's second in Britain in two months, will add to earnings in the first year.

Chief Executive Officer Charles Prince aims to produce at least 60 percent of profit overseas, up from almost 40 percent last year. He's struck deals in Turkey, El Salvador, China and Panama since the Federal Reserve lifted a ban on large takeovers by the bank in April. The sale marks a U-turn for Prudential CEO Mark Tucker, who last year said he would return Egg to profit by integrating the bank with the company's life insurance unit.

``It is a bit of a surprise given they have said Egg was a core business, but I think it makes perfect sense as Prudential is a life company and not a bank,'' said Kevin Ryan, a London- based analyst at ING Financial Markets.

Prudential shares fell 4.5 pence, or 0.6 percent, to 698 pence in London, valuing the company at 17.1 billion pounds. The stock is up 22 percent in the past 12 months, outpacing the 15 percent gain in the 29-member Bloomberg Europe 500 Insurance Index. Citigroup shares slipped 61 cents to $54.06 in New York.

In a separate deal today, New York-based Merrill Lynch & Co. agreed to buy First Republic Bank and its luxury-home mortgage business for $1.8 billion in cash and stock, the firm's biggest acquisition in almost 10 years.

Bad Loans

For Citigroup, the Egg deal ``provides us meaningful scale in consumer financial services in the U.K.,'' said George Awad, chief executive officer of Citigroup's Global Consumer Group for Europe, the Middle East and Africa, in the statement.

The purchase follows by a month Citigroup's acquisition of Quilter Holdings Ltd., a U.K. wealth-management unit of Morgan Stanley. Terms of that transaction weren't disclosed.

Citigroup is pushing into U.K. lending just as banks including Barclays Plc and HSBC Holdings Plc are reporting rising bad loans amid increasing personal bankruptcies. Egg's Tucker said today that credit conditions in the U.K. are ``exceptionally tough,'' and that Egg has experienced a ``deterioration'' on loans made in 2004 and 2005. Prudential today forecast Egg may post an operating loss of 145 million pounds for 2006.

Tucker has faced pressure to improve U.K. profits and sales after rejecting a 16.9 billion-pound bid from Aviva Plc last year. Prudential, which will use proceeds from the sale to cut debt, said the Egg sale will lift earnings per share this year.

Earnings Drag

Egg has been a drag on Prudential earnings since 2002, when it expanded in France. In 2004, Egg closed the French unit and sold its French savings and brokerage unit to ING Groep NV. The unsecured lending division was sold to Banque Accord.

Egg was created by Prudential as one of the first Internet banks in October 1998.

Tucker in December 2005 agreed to buy the 22 percent of Egg the company didn't already own after attempts by his predecessor Jonathan Bloomer to sell the business failed. Prudential paid 211.1 million pounds for the stake, valuing the entire company at 973 million pounds. Tucker also dismissed an offer for Egg in December from an unidentified suitor because it wasn't in ``shareholders' interests,'' the company said at the time.

``I'm broadly in favor of the deal, though I'm not sure it's a great price,'' said David Bradbury who helps manage $13 billion including Prudential stock at Canada Life in London. ``It will put some money back to finance the business.''

Sales Rise

Citigroup is paying about 2.1 times Egg's book value of 276 million pounds. That's less than the 2.8 times book that Bank of America Corp. paid for MBNA Corp. in a $35.4 billion takeover completed in January 2006.

Prudential will book a profit of about 299 million pounds from the sale, while writing down 255 million pounds from the reserves it uses to pay dividends. Dividends won't be affected, the company said.

Prudential reported today that its fourth-quarter sales of life insurance and pensions rose 25 percent to 665 million pounds from 533 million pounds in the year-earlier period.

Sales in the U.S. rose 29 percent to 147 million pounds and by 19 percent to 232 million pounds in the U.K. In Asia, new business increased by 29 percent to 282 million pounds.

Citigroup, which has about 100 consumer finance branches in the U.K., also provides wealth management services. It will increase the range of products available for Egg customers, said Citigroup's Awad in a telephone interview.

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By Jon Menon and Ben Livesey

To contact the reporter on this story:

Ben Livesey in London blivesey@bloomberg.net

Jon Menon in London at jmenon1@bloomberg.net .

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