It’s hard to say goodbye if you won’t leave
Editor’s note: Just after publishing this article, Citi announced it has reached agreement with UOB Group (UOB) on the acquisition of Citi’s consumer banking franchises in Indonesia, Malaysia, Thailand and Vietnam.
In April 2021, Citigroup announced a strategic decision to pursue exits from its consumer banking franchises in 13 markets in Asia and EMEA. This week, they added Mexico to the list.
So how is the work going across Australia, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, Thailand, Vietnam, Bahrain, Poland and Russia? Leaving can be a hard thing to do, so we thought the headline, which happens to be the title of Fraser’s Season 3, Episode 10 (unrelated to the current Chief Executive Officer), appropriate.
According to Fitch, the 13 original markets together contributed approximately USD 56bn in loans and USD 4.2bn in consolidated annual revenues as of 4Q20. They also “trap” about USD 7bn in tangible common equity (TCE).
Obviously, there will be secondary organizational effects as the regional, and even global management structures will need to slimmed down accordingly, and allocations adjusted, which will simplify the organization and set free further capital for investment into the private wealth and private banking business, as well as for the governance & control uplift required by the OCC consent order, for which Citi has submitted implementation plans during the third quarter.
In terms of a market-by-market view, naturally, our focus is primarily on Asia Pacific.
Australia
In August, National Australia Bank (NAB) has agreed to acquire Citi’s Australia consumer unit in a deal valued at USD 880m. 800 Citi employees and its senior management are joining NAB, but no infrastructure will change hands.
The deal is expected to close in the first half of 2022, and release USD 800m of the USD 7bn of allocated TCE.
Korea
In October, Citi decided to close its Korean consumer banking operations in phases, after its attempt to find a buyer of the business fell through. Financial disclosures estimated an exit cost of USD 1.2bn to USD 1.5bn.
CFO Mark Mason indicated in December that Citi would take approximately USD 1.2bn in charges related to the divestitures during the fourth quarter, the majority of which would be related to the Korean business.
The exit will release USD 2bn of the USD 7bn of allocated TCE over time.
Philippines
In December, Citi has reached agreement with UnionBank of the Philippines for its consumer banking franchise in the Philippines. The transaction covers Citi’s local credit card, unsecured lending, deposit and investment businesses, as well as Citicorp Financial Services and Insurance Brokerage Philippines Inc. (CFSI), which provides insurance and investment products and services to retail customers.
The agreement covers all related Citi staff, with approximately 1,750 consumer bank and supporting employees expected to transfer to UnionBank upon close of the transaction. UnionBank will pay Citi cash consideration for the net assets of the acquired businesses (subject to customary closing adjustments) plus a premium of PHP45.3 billion (approximately US$908 million).
Citi expects this transaction to result in the release of approximately USD 300m of allocated TCE.
While Australia, Korea and the Philippines are the three confirmed markets, first-round bidding for most other markets concluded at the end of October, and additional news started to leak in early December, which led Mark Mason to comment during the Goldman Sachs Financial Services Conference: “I know there was some news coverage on this just a day or so ago. But we’re approaching this with a real sense of urgency. We’ve been out in the market. I expect to have some updates in the first quarter. We’re deep into the second round bid discussions around this.”
Please also note that Citi has schedule an investor day for March 2. So while we can assume more detailed information will be disclosed at that point, the following leaks have transpired.
Thailand
Bank of Ayudhya (BAY), also known as Krungsri, was leaked as the winner of the bidding process for Citi’s retail assets, valued at around USD 2bn, however, neither BAY or Citi officially confirmed.
Thailand was considered the second most profitable asset for sale behind Citi’s Taiwan business.
BAY is majority-owned by Japan’s Mitsubishi UJF Financial Group, which in turn is further strengthening its position in South East Asia.
China
Bloomberg reported in December that Taiwan’s Fubon Financial Holding has emerged as the frontrunner to take over Citi’s assets in China, valued at between USD 100m and USD 200m.
Indonesia
Singapore’s United Overseas Bank is considered the preferred bidder in Indonesia.
Malaysia
Standard Chartered is considered the preferred bidder in Malaysia.
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