Singapore-based United Overseas Bank (UOB) announced on Friday that it has won the bid for Citibank’s retail banking sector in Thailand, Indonesia, Malaysia, and Vietnam.
In an early morning announcement to the Singapore Stock Exchange (SGX), UOB said that would buy out the assets.
“United Overseas Bank Limited (UOB)’s subsidiaries have entered into agreements to acquire Citigroup’s consumer banking businesses comprising its unsecured and secured lending portfolios, wealth management and retail deposit businesses (the Consumer Business) in Indonesia, Malaysia, Thailand and Vietnam (the Proposed Acquisition),” UOB said in a statement to the SGX.
The regional banking giant, UOB, said that as part of the proposed acquisition, UOB intends to bring onboard the employees in the consumer business.
UOB’s bid was viewed by analysts as the most comprehensive of the bids, UOB was looking to acquire assets all of Citibank’s assets in what UOB views as key markets in ASEAN while other banks were bidding for bits and pieces in different markets.
“Positive in my view, package deal to expand ASEAN, roughly double their client base in ASEAN, particularly in the mass affluent segment – which is where UOB is strongest. SG$5 billion deal is at 1.2x PB. Income accretive immediately, but likely to see full impact 2H2023 once integration is done. No risk of capital raising. Enough internal excess capital to pay for this and not a material impact on CET1,” said banking analyst at Maybank Kim Eng Securities.
Citibank said in a statement said “The agreement covers all related Citi staff, with approximately 5,000 consumer bank and supporting employees expected to transfer to UOB upon close of the proposed transaction.”
“UOB will pay Citi cash consideration for the net assets of the acquired businesses, subject to customary closing adjustments, plus a premium of S$915 million [US$690 million].”
The other bidders for the Thai operations were local giant Bangkok Bank Plc., the newly merged Thanachart TMB Bank Plc (TTB), Bank of Ayudhaya Plc (BAY), apart from Singapore-based United Overseas Bank Plc (UOB).
UOB was among the only banks that had bid for assets in a few countries.
“This transaction represents a positive outcome for our clients, our colleagues and our firm. Citi is committed to a seamless transaction, and during the transition to closing, there will be no change in service provided to our consumer banking and wealth customers,” Tibor Pandi, Country Head, Citi (Thailand) said.
He added that Thailand remains a key market for Citi globally and that Citibank remains committed and focused on serving institutional clients locally, regionally, and globally.
The sale price is for about S$4.915 billion (US$3.65 billion) and Citibank said that upon closing, Citi expects the transaction to result in the release of approximately US$1.2 billion of allocated tangible common equity, as well as an increase to tangible common equity of over US$200 million.
As previously announced, Citi’s exit from its consumer franchises in 13 markets across Asia Pacific and EMEA is expected to release approximately US$7 billion of allocated tangible common equity over time.
Meanwhile, UOB’s said that Citigroup’s consumer business had an aggregate net asset value of approximately S$4.0 billion and a customer base of about 2.4 million as at 30 June 2021, and generated income of approximately S$0.5 billion in the first half of 2021.
Excluding one-off transaction costs, the proposed acquisition is expected to be immediately accretive to UOB’s earnings per share (EPS) and return on equity (ROE).
The total cash consideration for the acquisition will be calculated based on an aggregate premium equivalent to S$915 million plus the net asset value of the consumer business at completion. The acquisition is expected to be financed through excess capital and estimated to reduce UOB’s CET1 ratio by 70 basis points to 12.8%, based on its capital position as of September 30, 2021. UOB added that this deal’s impact on the CET1 ratio is not expected to be material and will be well within regulatory requirements.
Completion of the acquisition in each country will be conditional on obtaining regulatory approvals relevant to each country and in Singapore. It is estimated that completion will take place between mid-2022 and early 2024, depending on the progress and outcome of the regulatory approval process.
Citigroup will assist UOB Group with the migration of the customers and employees of its Consumer Business to ensure a smooth transition.
UOB, under the leadership of Wee Cho Yaw, had started to expand into various countries around the 10-member ASEAN ever since the 1997 financial crisis and in Thailand Wee’s UOB had first acquired stake in the Financial Institutions Development Fund (FIDF)’s Radanasin Bank that was set up to take control of the ailing Laem Thong Bank after the 1997 Tom Yam Krung crisis.
In 2004, UOB then paid US$535.5 million to Dutch banking giant ABN AMRO to acquire 80.80% in Bank of Asia Plc, and then renaming the merged entity as UOB (Thailand).
Apart from Thailand, UOB has strong retail presence in Malaysia and has been growing its presence in Indonesia, another market that has high growth potential. Vietnam is another market in that UOB has been looking to expand and grow its presence as the country is one of the few that continues to show strong economic growth prospects.
“The acquisition of Citigroup’s retail business in our key markets of Indonesia, Malaysia, Thailand and Vietnam is a great opportunity that comes at the right time. UOB believes in Southeast Asia’s long-term potential, and we have been disciplined, selective and patient in seeking the right opportunities to grow,” Wee Ee Cheong, (son of Wee Cho Yaw) Deputy Chairman and Chief Executive Officer (CEO) of UOB.
UOB said that the retail strategy for the group would include tapping the rising affluence in Southeast Asia, acquiring and serving customers through its digital banking platform, and meeting their financial needs through its omni-channel approach as they move up the wealth continuum.
The new acquisition will expand UOB’s partner ecosystem and is expected to double UOB’s existing retail customer base in the four markets, accelerating its customer base target five years ahead of time.
Completion of the deal will be conditional on obtaining regulatory approvals relevant to each country. It is estimated that completion will take place between mid-2022 and early 2024, depending on the progress and outcome of the regulatory approval process.
UOB has also reportedly bid for assets in Taiwan, another goldmine for Citibank which is also up for sale but a decision on the other markets is expected to be announced in the next couple of weeks/months.
Citibank has said that it wants to get out of as many as 13 markets ranging from Australia, Bahrain, China, India, Indonesia, Korea, Malaysia, the Philippines, Poland, Russia, Taiwan, Thailand and Vietnam.
So far only 6 (Australia, Thailand, Malaysia, Indonesia, the Philippines and Vietnam) have been announced.
The acquisition by UOB is likely to bring joy to many of the customers who had been venting their anger on social media after earlier reports came out that BBL was going to be the likely winner of the bidding war.
It was reported that BBL had offered to pay as much as $2 billion for the Thai assets as BBL looks to diversify its business away from corporate banking.
Consumers were apprehensive about how BBL could live up to the high standards of Citibank’s retail operations, and some had said that if BBL won the bid they would give up their accounts and move away from Citibank.
Citibank’s retail operations in Thailand are considered to be a goldmine for most banks as the customer base of Citibank is one of the highest spending groups of customers.
Citibank (Thailand) retail banking operation is also one of the retail units that has low non-performing loans (NPLs).
Advising the deal in Singapore for UOB is Credit Suisse (Singapore), while Citi’s Banking, Capital Markets and Advisory Group is acting as exclusive financial advisor to Citi in respect of the transaction.