DBS Group Holdings agreed to buy Citigroup’s consumer banking assets in Taiwan, as Southeast Asia’s largest lender pushes ahead with plans to boost its regional presence.
The Singapore bank will pay cash for Citi Consumer Taiwan’s net assets plus a premium of S$956 million ($707 million), which will be determined at the close of the deal that’s expected mid-2023. DBS plans to inject S$2.2 billion into the Taiwan unit, S$1.2 billion of which will be used as capital to support incremental risk-weighted assets and capital needs, it said in a statement Friday.
The purchase is part of DBS’s long-standing goal of growing in large emerging markets. Last year, the lender agreed to pay S$1.1 billion for a 13% stake in China’s Shenzhen Rural Commercial Bank Corp., less than six months after it took over India’s Lakshmi Vilas Bank Ltd.
“Notwithstanding COVID-19, we believe that Asia’s long-term growth trends remain intact,” DBS Group Chief Executive Piyush Gupta said in a statement Friday. “The acquisitions we have made since the start of the pandemic have given us a platform to build meaningful scale in some of our core markets. This acquisition is no exception.”
DBS will fund the transaction with excess capital and the deal won’t impact its ability to pay dividends. DBS shares fell 0.3% as of 12:15 p.m. in Singapore, compared with a 0.3% advance for the Straits Times Index.
Citigroup strategy
For Citigroup CEO Jane Fraser, the Taiwan sale is part of an ongoing
Earlier this month, Citigroup sold its consumer assets in four Southeast Asian markets including Indonesia and Thailand to Singapore’s United Overseas Bank Ltd. for about $3.6 billion. The Asia and European asset sales are expected to release about $7 billion of allocated tangible common equity over time.
Citi Consumer Taiwan has been operating in the country since 1985, and currently has 2.7 million credit cards and unsecured accounts, about half a million deposit and wealth customers, approximately 3,500 employees and 45 branches. At the end of September, it had an earning asset base of S$20.3 billion and total deposits of S$15.1 billion. The DBS deal will accelerate its growth by at least 10 years, making it Taiwan’s largest foreign bank by assets.
Gupta, who has previously expressed interest in Citi’s assets in India, said on Friday that after taking a look at all of the U.S. firm’s book of assets, it decided to narrow down on Taiwan because it was the most attractive. “And a few other assets that we looked at, we chose to pass,” he said at a press briefing.
Staff attrition
There is also a commitment to keep all of Citi’s 3,500 workers in Taiwan and not to retrench them over the next few years, Gupta said. Still, DBS does expect some employee attrition of between 10% and 20% over time, he said. DBS’s latest acquisition gives it a leg up in Greater China and is set to boost 2023 profit by about 3%, according to Bloomberg Intelligence analyst Sharnie Wong.
It’s much easier for companies to make acquisitions in times of crisis, in this case caused by the pandemic, and buy players who are struggling and then position for recovery, said Terence Chua, an analyst at Phillip Securities Research Pte. That’s what DBS is doing and has done so with its string of purchases in the past one and a half years, he said.
“It’s taking advantage of its strong balance sheet and making aggressive steps to expand,” he said.
Morgan Stanley is advisor to DBS on the deal.
