Citigroup Inc. today announced that it is selling its German retail banking unit for US$7.7 billion.

The banking giant said it has entered into a definitive agreement to sell Citibank Privatkunden AG & Co. KGaA to Credit Mutuel, the third largest retail banking group in France. Credit Mutuel will pay all-cash consideration of 4.9 billion euros (US$ 7.7 billion) plus earnings accrued in 2008 through the closing. The sale is expected to close in the fourth quarter pending regulatory approvals.

The transaction is expected to result in an estimated after-tax gain of $4 billion to Citi upon closing. After the proposed sale, Citi’s Tier 1 capital ratio will have increased by approximately 60 basis points as of March 31, the bank noted.

The bank said that the decision to sell its retail banking business in Germany came as the result of a global strategic review conducted by CEO Vikram Pandit. The transaction reflects Citi’s strategy of redirecting capital to core businesses and emerging growth markets.

“We are very pleased with this transaction and believe Credit Mutuel is an outstanding choice to continue to provide excellent service to Citibank’s retail customers in Germany. 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 driven by our core businesses,” said Pandit.

Citi adds that it remains strongly committed to its remaining German businesses, including its full service corporate and investment banking business and its European data center, which is the biggest Citi data center outside the US. “In Germany, our talented corporate and investment banking teams remain central to our strategy and we’re committed to maintaining their leadership position in this market,” Pandit noted.