In-Depth – Citibank’s sale of Thai operations likely to fetch big bucks

The recently announced sale of the consumer banking assets of Citibank (Thailand) is likely to attract a lot of potential buyers as the bank’s Thai operations are considered to be much sought after.

Global banking giant Citigroup announced this week that it was looking to divest its operations in Thailand as part of a move to ‘exit’ as many as 13 countries.

Citibank, which is Thailand’s largest credit card issuer, made the announcement on Thursday in New York at an analyst meeting. The announcement was made by the new Chief Executive Officer of Citigroup, Jane Fraser.

Fraser said that while the 13 markets have excellent businesses, Citigroup does not have the scale needed to compete.

She said that the bank was looking to sell its consumer businesses in Australia, Bahrain, China, India, Indonesia, Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand and Vietnam.

The sale is likely to see interest from many potential buyers for its assets in Thailand as the Thai operations is one of the better performing assets in the region.

“The Thai assets are a gem of a business and the sale is likely to attract a lot of buyers,” a source in the industry told Thai Enquirer. 

The Thai operation of Citibank is one of the most profitable for the group, generating profits of more than $110 million annually.

Citigroup N.A. does not give breakdown of the revenues or profits for each country but in the latest announcement on April 15 for the 1st quarter of 2021, the bank stated that overall Asia recorded revenues of $1.6 billion while expenses stood at $1.22 billion thus leaving an earnings before tax of $341 million.

The revenues of its Asia operations during the 1st quarter of 2021 was about 62 per cent of the overall international revenues ($2.61 billion) and roughly 23 per cent of the global revenues.

Citigroup’s Asian operations actually performed better than the rest of the world including the main North American market. That is despite its Asian operations seeing a 12 per cent decline year-on-year. Overall, Citigroup saw a 15 per cent decline in revenues in the consumer banking market due to the pandemic.

Good Quality Assets

Industry sources have acknowledged that the quality of the assets of Citibank (Thailand) are in the ‘B+ to A’ segment of the market and will likely attract numerous bidders.

This segment of the market is marked by consumers with high spending power and fewer non-performing loans, or default on the debts.

“Yes, I have to admit that their customer base is in the B+ to A segment but that also means that the assets will likely be sold at a very high premium,” one of Citibank’s competitor in Thailand told Thai Enquirer.

“Their customers are really very good quality.”

Citibank (Thailand) which has around 1.5 million credit card users and about 800,000 personal loan business under its consumer banking division is one of the very few financial institutions that has few non-performing loans and its average spending on its cards are among the highest.

Sources have said that its so called ‘Ultima’ card has an average spending of more than $300,000 per annum per card with some ‘Ultima’ cardholders running bills in the millions of dollars.

Ultima is an invitation only card that charges its users $3,000 per annum in fees and offers bespoke service to those that can afford its services.

High Price Tag

The sale of the consumer banking operations of Citibank in Thailand would mean that the buyer would likely have to fork out billions of baht.

“If you look at the premium that is being given to KTC (Krung Thai Card Plc), you will see that they are generating similar level of revenue and slightly less profits, and their asset quality is not as high as Citibank’s,” the source said.

KTC, which is 49.29 per cent owned by state-owned Krung Thai Bank Plc, currently trades at just over 36x its price-to-earnings ratio and 8.5x its book value giving KTC a market capitalization of 195 billion baht.

KTC has about 2 million credit card users and about 800,000 personal loan clients.

The source said that with similar book on the consumer banking and better quality assets and higher profitability, the likelihood of the price tag of Citibank (Thailand) being higher would not be surprising.

“I expect the price to be high as it is likely that many banks and I mean big banks, would be keen to explore the possibility of purchasing the assets,” another competitor to Citibank (Thailand) told Thai Enquirer.

“We may not have the capacity to buy such a big asset but the like of the big banks in Thailand could benefit from such a purchase.”

Big banks in Thailand have been trying to tap into the high-end consumer spending segment but have had difficulty in achieving success. A piece of pie from Citibank (Thailand) could possibly propel that bank into the top league of the consumer spending league.

Possible Suitors

CGS-CIMB Securities came out to that it too views that larger banks such as Siam Commercial Bank Plc (SCB) could be the key suitor for the transaction. The broker said that according to data from the Bank of Thailand (BoT) Citibank (Thailand)’s outstanding portfolio accounts for 1.8 per cent of the total system’s retail loans outstanding.

“While this is an opportunity for the big (Thai) banks I could only see SCB being a potential suitor in taking over Citi retail business,” the broker said in a note to clients.

SCB is still looking to allocate its capital received from the SCBLife divestment, with its initial plans being for international expansion or adjacent business. Assuming that SCB purchases the portfolio with no premium, the portfolio could generate 6 per cent upside to SCB’s projected 2021 net profit.

The broker said that Bangkok Bank Plc (BBL) is unlike increase its exposure to retail especially under the current environment, and that Kasikorn Bank Plc (KBank), which is the market leader in credit card spending may also not enter into the bidding for this transaction.

Although most people feel that the possible suitors are going to be local Thai financial institutions, one should not rule out the possibility of entry of some foreign banks.

Regional Asian and Asean banks that have been eyeing entry into Thailand’s consumer market or region wide, could also participate in the process.

“If you think about it Citi could sell it in small blocks, which means that they could put the assets such as Thailand, Indonesia, Malaysia, Vietnam and another cash cow Taiwan and sell it as one chunk,” said an insider.

This scenario could attract some regional banking players such as Singapore United Overseas Bank  or Development Bank of Singapore (DBS) which has been focused on just the Singapore market since Piyush Gupta just over a decade ago.

Seller CEO

The move to sell the assets in Thailand comes after nearly 5-decades of presence in the country, should not come as a surprise to the market as Fraser has in the past made such decisions. Citigroup CEO Fraser had made a similar decision in Latin America in 2015 when she was made the head of the region and decided to divest the credit card businesses in Brazil, Argentina and Colombia.

Even during that sale, she had argued that Citigroup would not be able to make the investments needed to ‘achieve proper’ scale although the Argentinian branch was opened in 1914.

Earlier this year Bloomberg had stated that the group’s assets in Asia and Mexico (another area that was in consideration for divestment but was spared) totaled $161 billion and accounted for 40 per cent of Citigroup’s total global consumer banking earnings.

Bloomberg in February reported that Citigroup’s Asia consumer business, which reaches far beyond the region, spans 17 markets — 12 in the Asia-Pacific area and five in Europe, the Middle East and Africa. The unit is home to 16 million credit-card accounts and more than 400,000 wealth-management customers.

Bad Decision

The decision to divest the retail assets has been question by former and current employees of Citibank who question the merit of such moves.

“All they could have done is invested a few billion dollars more to take a lead in this business globally as in many of the market Citi is already a market leader and these are the markets where the future growth is expected to happen,” said a former employee who is now working for a competitor.

Divesting countries such as China, India, Vietnam, Indonesia and Thailand is something that is questionable. Most global players are looking to enter these markets and shore up their presence as most of these countries have growth potential and younger population.

The source said that apart from this Citibank could have used its Citigold and its ‘Ultima’ card base to expand into the wealth management business that has been the focus of CEO Fraser.

“With the spending power of up to $300,000 or about 800,000 baht a month, Citibank could have tapped into the wealth management in a big way,” another source said adding that this does not include the likes of those who spend millions of dollar annually.

“Imagine these people would be in the totally high-end market segment, these is the cream of the crop kind of client base for Thailand.”

Citibank (Thailand) was not in this phase as it was until 2018 buying out assets to expand its businesses. As early as March 2018 Citibank has purchased the personal loan and credit card business from Tisco Bank and its subsidiary Tisco Card Service which had purchased the retail business of Standard Chartered (Thailand) for a price tag of 6.9 billion baht.

Standard Chartered bank had in October 2017 sold its retail business that included 7 billion baht of personal loans, 5 billion baht in business loans, 25 billion baht in mortgages, six branches of Standard Chartered Bank Thailand, 300,000 retail customers, 100,000 affluent clients and 4 billion baht worth of credit card business.

“The quality of assets sold by StanChart was nowhere as good as that of Citi, but they managed to sort out the issue after they (Citi) purchased the assets,” a competitor told Thai Enquirer.

The March 2018 acquisition by Citibank (Thailand) was the 1st time that the bank had gone for inorganic expansion since it was set up in Thailand in 1967.

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