UNITED OVERSEAS BANK LTD (SGX:U11)
United Overseas Bank - Acquisition Of Citigroup’s Consumer Banking Businesses In Indonesia, Malaysia, Thailand And Vietnam
- UOB (SGX:U11) has entered into agreements to acquire Citigroup’s consumer banking businesses comprising unsecured and secured lending portfolios, wealth management and retail deposit businesses in Malaysia, Thailand, Indonesia and Vietnam. The acquisition is expected to double retail customer base and provide uplift to income of 40% from the ASEAN-4 markets.
- Excluding one-off transaction costs, the acquisition is expected to be immediately accretive to UOB’s EPS and ROE.
Bagged a package of consumer businesses in four countries.
- United Overseas Bank (UOB) has entered into agreements to acquire Citigroup’s consumer banking businesses comprising unsecured and secured lending portfolios, wealth management and retail deposit businesses in Malaysia, Thailand, Indonesia and Vietnam.
Strengthens franchise in Southeast Asia.
- The acquisition strengthens and deepens UOB’s ASEAN franchise and is expected to double UOB’s existing retail customer base in the four markets. Citigroup’s consumer businesses have a customer base of 2.4m as at Jun 21 (Malaysia: 0.6m, Thailand: 1.1m, Indonesia: 0.6m and Vietnam: 0.2m), bringing UOB’s customer base in ASEAN-4 markets to 5.3m. The acquisition provides an uplift to income from ASEAN-4 markets by 40% (Malaysia: +20%, Thailand: +60%, Indonesia: +30% and Vietnam: +100%).
Strategic fit and complementary products.
- UOB’s strength in funding and secured lending complements Citigroup’s competitive edge in unsecured lending and wealth management. Unsecured lending is estimated to have expanded from 21% to 36% of total income from Personal Financial Services on a pro forma basis in 1H21. On a group-wide basis, the rest of ASEAN is estimated to have expanded from 21% to 23% of total loans as of Jun 21.
- The acquisition will propel UOB to be a leading retail bank and card issuer in Southeast Asia. UOB is able to deepen the engagement of existing clients through its omni-channel platform and acquire new clients through its TMRW digital platform.
Acquisition is EPS and ROE accretive.
- Citigroup’s consumer business has an aggregate NAV of S$4.0b and generated income of S$0.5b in 1H21. Excluding one-off transaction costs, the acquisition is expected to be immediately accretive to UOB’s EPS and ROE. Including one-off transaction costs, the acquisition is expected to be accretive to EPS and ROE by 2023. Management targets to improve ROE to above 13% and RORWA by 30bp to 2.0% by 2026, driven by scaling up regional subsidiaries and organic growth.
- Acquisition priced at P/B of 1.2x. The total cash consideration for the acquisition of about S$5b is calculated based on an aggregate premium of S$915m plus the NAV of the consumer business as at completion, representing P/B at 1.2x.
- Funded by internal resources. The acquisition is expected to be financed through excess capital and reduce CET-1 CAR by 70bp to 12.8%. CET-1 CAR is expected to recover back above 13% by 2023. Management is comfortable with maintaining dividend payout ratio at 50%.
Acquisition timeline.
- Completion of the acquisition is expected to take place from 2H22 to 1Q24, subject to regulatory approvals. Citigroup will assist with the migration of customers and employees to UOB’s consumer business to ensure a smooth transition.
- See
Jonathan KOH CFA
UOB Kay Hian Research
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https://research.uobkayhian.com/
2022-01-17
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