Aboitiz-led Union Bank of the Philippines has inked a P55-billion “game-changing” deal to buy about a quarter of American banking giant Citi’s local assets, jacking up potential earnings from the high-margin consumer banking segments and boosting its rank among banking peers.
The transaction—the largest seen in the Philippine banking community in recent years—will fast-track UnionBank’s penetration of the upscale local consumer market by five to 10 years and likely boost its income stream by about P6 billion annually beginning 2023, the first full year of integration, UnionBank president Edwin Bautista estimated in an interview with Inquirer on Thursday.
The deal will enlarge UnionBank’s balance sheet by about P89.5 billion, bringing its total resources to P735.5 billion, dislodging Security Bank as the country’s ninth largest bank in terms of resources once the transaction is consummated by the second half of 2022.
But more than the ranking improvement, the incremental profits from the “crown jewel” of Citi’s consumer banking franchise and the diversification of client base would benefit UnionBank over the long haul, Bautista said.
Estimated return on investment from this acquisition is about 18 percent based on a 10-year compounded average annual growth rate, added UnionBank senior executive vice president and chief financial officer Jose Emmanuel Hilado.
The bundle includes Citi’s Citibank Square in Eastwood cyberzone, three full-service bank branches, five wealth management centers and two bank branch lites alongside about 1,750 consumer banking staff and support employees who power these businesses.
Bautista said all of these employees would keep their jobs as there would be no redundancy in operations.
Retail banking
As of end-June, Citi had a consumer loan book of P59.7 billion while its retail banking segment, comprising mostly affluent clients, had total liabilities of P71.7 billion, including P67.8 billion in deposits and P95 billion in investment assets under management.
The deal will jack up the share of consumer banking to 50 percent of UnionBank’s total portfolio from 40 percent at present.
In a deal signed on Thursday, UnionBank agreed to pay a premium of P45.3 billion plus P9.7 billion in cash equivalent to the equity value of Citi’s credit card, personal loans, wealth management and retail deposit businesses.
“Citibank Philippines has a great, profitable and well-run retail portfolio. It has the third largest credit card franchise and is a pre-eminent wealth management provider in the Philippines. We look forward to this game-changing opportunity to leapfrog our credit card business and significantly expand our banking business in the higher end segment of the consumer market,” Bautista said.
In the credit card business alone, Citi has about one million local customers and is among the top three in terms of share of credit card spending to date. In retail banking, Citi has about 50,000 customers.
“One [Citi] customer might probably be worth five or 10 times more the average old Unionbank customer,” Bautista said.
UnionBank expects to end this year with a 10-million client base, up from 7 million last year, aided by various digital platforms. However, most of its new client acquisitions are from the middle to lower income segments.
The business to be acquired by UnionBank generates about P12 billion in net revenues annually. “So the income effect is about P6 billion,” Bautista said.
To fund the acquisition, UnionBank’s board approved a P40-billion capital-raising program through the sale of new shares to existing investors in early 2022.
Sabin Aboitiz, president and CEO of UnionBank’s parent conglomerate, Aboitiz Equity Ventures, said: “We are confident that this acquisition will be truly transformative for the bank. Through it, UnionBank will become the fourth largest in the credit card business and a major player in the wealth management business. It is also expected to deliver significant revenue synergies and will come with a whole team of talented professionals from Citibank.”
As of end-June, UnionBank ranked 10th among the country’s largest banks, with a total asset base of P646 billion. The last time that it entered into a merger and acquisition (M&A) transaction was in 2006, when it gobbled up International Exchange Bank. However, its savings bank unit City Savings Bank picked up a number of small rural banks over the years.
Morgan Stanley is the exclusive international financial advisor to UnionBank, while Milbank LLP and Romulo Mabanta Buenaventura Sayoc & de los Angeles are its legal advisors.
“This transaction represents a positive outcome for our clients, our colleagues and our firm. We are delivering on our renewed strategy, focusing resources in areas where our global network positions us to deliver optimal growth and returns. Citi will continue to serve institutional clients in the Philippines and across Asia Pacific as we have for over a century. We are very pleased with today’s announcement, and we will use the capital generated to invest in our strategic priorities,” said Peter Babej, Citi Asia Pacific CEO.