Following UOB’s acquisition of Citi’s consumer business in four Asean markets, DBS Group Holdings is the next Singapore-based lender to pick up where Citi is leaving.
On Jan 28, DBS said it is buying Citibank’s consumer business in Taiwan by paying a premium of $956 million in cash, plus the value of its net assets.
DBS will be injecting a total of $2.2 billion into this deal which consists of the $956 mil in premium as well as $1.2 billion to support the risk-weighted assets and capital needs.
At this price, DBS is paying 1.8 times price to book, or 9.5 times P/E based on $250 million pre-Covid-19 average net profit.
The acquisition, which is targeted for completion in the middle of next year, will be immediately accretive to earnings as well as return on equity and have no impact on DBS’ ability to pay dividends.
The acquisition, according to DBS, will add some $250 million in annual earnings, and speed up its growth in Taiwan by ten years and make it the largest foreign-owned bank in the market by assets.
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“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,” says DBS CEO Piyush Gupta. “This acquisition is no exception.”
Lim Him Chuan, general manager of DBS Taiwan calls Citi Consumer Taiwan “highly complementary” given its high-quality wealth management business as well as huge credit card customer base with a high activation rate and spending level.
“For Citi, this transaction will enable additional investment in our strategic focus areas, including our institutional businesses in Taiwan, which remains a priority market for our firm,” says Peter Babej, Citi Asia Pacific CEO.
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Citi as of Sept 30 2021, had an earning asset base of $20.3 billion (NTD 421.9 billion), comprising $11.3 billion of loan book and $9 billion of investment asset under management. It has total deposits of $15.1 billion (NTD 314.0 billion), of which more than 70% are so-called “sticky low-cost” deposits.
Citi's Taiwan consumer bank business has 45 branches, 2.7 million credit card and unsecured loan accounts, as well as 500,000 deposit and wealth accounts. It also hires 3,500 people.
Hit by the Covid-19 lower credit card expenditure and interest rates collapse, the franchise’s net profits after tax in FY20 fell 34% y-o-y to $158 million. However, with the current outlook on rates, Gupta expects the business to "roar back" in either this year or 2023.
Post-acquisition, DBS expects its credit card, affluent and high-net-worth customers in Taiwan to grow by 5.7 times, 1.9 times and 3.7 times, respectively.
DBS’ Gupta says the bank is not looking at other Citi assets in the region, having narrowed down on the Taiwan consumer business franchise which it deems as the most attractive and synergistic.
