SINGAPORE - UOB has agreed to acquire Citigroup's consumer banking franchise in Indonesia, Malaysia, Thailand and Vietnam for about $4.915 billion.
The move will enable Singapore’s third-largest bank to “scale up its business in four key regional markets at one go” and accelerate its growth targets by five years, UOB deputy chairman and chief executive officer Wee Ee Cheong said in a briefing on Friday (Jan 14).
The franchise across the four markets comprises the US bank's unsecured and secured lending portfolios, wealth management and retail deposit businesses.
UOB will pay cash for the acquisition equal to the business' net asset value (NAV) as at deal completion plus a premium of $915 million - fully funded by the bank's excess capital. The target business had an aggregate net asset value of about $4 billion as at June 30 last year.
UOB will also bring on board Citibank’s 5,000 employees in the four countries, including senior leadership, after the deal closes.
Completion of the deal is conditional on regulatory approvals relevant to each country and in Singapore.
UOB estimated that completion will take place between mid-2022 and early 2024, depending on the progress and outcome of the regulatory approval process.
Citigroup had 2.4 million retail customers in the four markets as at June last year, with the consumer business generating income of about $500 million in the first half of 2021.
Mr Wee said the acquisition will double the bank’s retail customers in the four markets to 5.3 million, and make it among the top three card issuers in Thailand and Malaysia and among the top five in Indonesia.
This is after factoring in an estimated 10 per cent loss in the number of customers as a result of the merger, he added.
The move will also double UOB’s card business in the region and expand its total contribution to north of 35 per cent of the group’s total consumer franchise income, up from 25 per cent currently, said Ms Jacquelyn Tan, head of group personal finance services at UOB.
Once completed, the acquisition will immediately add $1 billion to UOB’s annual income, said Mr Wee.
However, the move will become accretive to the bank’s earnings and return on equity (ROE) only the following year, after factoring in one-off costs amounting to $700 million for the first two years.
The one-off costs comprise $200 million in tax and stamp duties, and expenses for integration and branding, said UOB group chief financial officer Lee Wai Fai.
UOB is targeting a 13 per cent ROE by 2026 as a result of the acquisition, which will enable the bank to pursue its strategy of scaling up in the region.
Mr Lee added that UOB is “comfortable” with maintaining a 50 per cent dividend payout ratio.
Mr Wee said the acquisition, the bulk of which comprises Citi’s Thai consumer business, was a great opportunity that came at the right time.
“UOB believes in South-east Asia’s long-term potential and we have been disciplined, selective and patient in seeking the right opportunities to grow,” he said.
“The acquired business, together with UOB’s regional consumer franchise, will form a powerful combination that will scale up UOB group’s business and advance our position as a leading regional bank.”
The purchase will reduce UOB's CET1 ratio by 70 basis points to 12.8 per cent, based on its capital position as at Sept 30, 2021.
The CET1 ratio compares a bank's capital against its assets and is used by regulators a measure to test a bank's liquidity and ability to survive a financial downturn or other unforeseen losses.
"The effect to CET1 ratio is not expected to be material and will be well within regulatory requirements," UOB said.
UOB shares rose after news of the deal, with the stock up 75 cents, or 2.6 per cent, to $29.93.
The bank is acquiring the consumer business in four out the 16 markets which Citi is exiting.
Last year, following a strategic review of global operations by incoming chief executive Jane Fraser, the US' third-largest banking group announced its exit from consumer banking businesses across much of Asia.
Citigroup will still have an institutional banking presence in the four Asean sale markets.
It also noted on Friday that Singapore will become even more important for the group, as the Republic is one of its two wealth hubs in Asia, the other being Hong Kong.
UOB said Citigroup will assist it with the migration of customers and employees of its consumer business to ensure a smooth transition.
Mr Peter Babej, Citi Asia Pacific CEO, said: "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."
Credit Suisse (Singapore) is acting as financial adviser to UOB in this deal and Allen & Overy LLP (Singapore) is its legal adviser.