UOB KH: SP: DBS Group Holdings (DBS SP) – Scaling Up By Acquiring Citi Consumer Taiwan
alanyeo
Scaling up in Taiwan. DBS has agreed to acquire the consumer banking business of Citigroup in Taiwan (Citi Consumer Taiwan) via a transfer of assets (loans of S$11.3b) and liabilities (deposits of S$15.1b). Given that Citi Consumer Taiwan’s net assets is negative (deposits exceed loans by S$3.8b), Citi will transfer cash of S$3.8b to DBS. DBS will pay Citigroup a premium of S$956m (NT19.8b) and also inject S$1.2b (NTD24.5b) into DBS Taiwan to support incremental risk-weighted assets and future capital needs. Based on the total cost of S$2.2b (S$1.2b + S$956m), DBS paid PE of 9x for Citi Consumer Taiwan based on pre-pandemic earnings.
Becoming the largest foreign bank in Taiwan. Citi Consumer Taiwan is the best foreign consumer bank in Taiwan with 2.7m credit cards and unsecured accounts, 0.5m deposit and wealth customers and 45 branches. It has a high-quality wealth management business and a huge credit card customer base with a high activation rate and spending level. It has an earning asset base of S$20.3b, comprising loans of S$11.3b and investment AUM of S$9b. It has total deposits of S$15.1b, of which more than 70% are sticky low-cost deposits (CASA), as of Sep 21. It generated annual net profit of S$250m on average and ROE of above 20% pre-pandemic in 2018 and 2019.
Acquisition is earnings and ROE accretive. DBS Taiwan and Citi Consumer Taiwan on a combined basis will have the largest credit cards balance, investment AUM, loan book and deposit base amongst foreign banks in Taiwan. Excluding one-time transaction costs of S$200m, the acquisition is expected to be accretive to earnings and ROE immediately after completion. CET-1 CAR is expected to drop by 70bp but management do not expect any impact on DBS’ ability to pay dividends.
Completion and full integration of Citi Consumer Taiwan is anticipated in the middle of 2023.
