Singapore’s United Overseas Bank (UOB) strengthened its regional footprint with the acquisition of Citi’s lucrative consumer banking businesses in Indonesia, Malaysia, Thailand, and Vietnam.
The deal, which was announced today (January 14), had a total cash consideration equivalent to S$915 million (US$690 million), calculated based on an aggregate premium equivalent, plus the net asset value of the consumer business at completion of the deal. The total cash consideration translates to 1.2x book value.
In an online news briefing, UOB deputy chairman and chief executive officer Wee Ee Cheong described the deal as “transformational” and is expected to be immediately accretive to its earnings per share (EPS) and return on equity (ROE), excluding one-off transaction costs
The proposed sale is part of Citi’s decision to exit consumer banking operations in 13 markets across the Asia-Pacific, Europe, and the Middle East, which is expected to release approximately US$7 billion of allocated tangible common equity over time.
In response to a question, Wee says UOB did not bid for other Citi franchises in the region, although the US bank is actually in the process selling it businesses in 13 markets.
“We are only interested in Indonesia, Malaysia, Thailand, and Vietnam. This deal advances UOB’s position as the leading regional bank. We know this region well and believe in its growth potential. With this deal we get to scale up our business across four target markets at one go, in one move pulling our retail franchise in four countries, and accelerating our growth targets by five years. It is the right strategic fit,” Wee says.
According to UOB group chief financial officer Lee Wai Fai, Citigroup’s consumer business had an aggregate net asset value of about S$4.0 billion (US$2.97 billion) and generated income of approximately S$0.5 billion in the first half of 2021. It has a customer base of about 2.4 million as of June 30 2021.
“In terms of financial impact, the acquisition will immediately bring a 1.4x income uplift and 1.2x growth uplift in the four markets from our enlarged scale. At the group level we can see an immediate S$1 billion incremental income uplift,” Lee says.
The deal, which is fully funded from UOB’s excess capital, has minimal impact on the bank’s capitalization. “C Tier 1 (common equity) impact will be 0.7% which is manageable. Post-acquisition, UOB remains well capitalized. We expect the normalization of our ROI WA to be above 1.7%, we plan to restore capital, target for our C Tier 1 to be greater than 13% by 2023. By scaling our subsidiaries we are now targeting a higher ROE of more than 13%,” Lee says.
The effect to CET1 ratio is not expected to be material and will be well within regulatory requirements, Lee says.
The UOB officials took time to reassure all Citi clients in the four markets that the servicing of their accounts will remain normal since UOB and Citi have compatible operating systems and processes, as well as similar standards of service and product suites.
Wee says the deal is expected to be completed between mid-2022 and early 2024 subject to regulatory approvals and that all related Citi staff, with approximately 5,000 consumer bank and supporting employees expected to transfer to UOB upon close of the deal.
In a separate statement, Citi says it 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.
Citi Asia-Pacific CEO Peter Babej says: "We are excited to announce this transaction with UOB, a leading pan-Asian institution. We are confident that UOB, with its strong culture and broad regional ambitions, will provide excellent opportunities and a long-term home for our consumer banking colleagues in Indonesia, Malaysia, Thailand and Vietnam. Focusing our business through these actions will facilitate additional investment in our strategic focus areas, including our institutional network across Asia-Pacific, driving optimal returns for Citi.”
Credit Suisse is acting as financial adviser to UOB Group in this proposed acquisition and Allen & Overy as its legal advisers. Citi’s Banking, Capital Markets and Advisory Group is acting as exclusive financial adviser to Citi in the transaction.
Last month, Union Bank announced that it is acquiring Citi's consumer banking business in the Philippines for about 55 billion pesos (US$1.1 billion). The Philippine bank will pay Citi a cash consideration for the net assets of the acquired businesses plus a premium of 45.3 billion pesos (US$890 million). The required equity is approximately 9.7 billion pesos as of June 30 2021.