Deal with Citi 'credit positive' in the long haul for UnionBank
MANILA, Philippines — As UnionBank of the Philippines is set to acquire Citigroup's consumer banking assets in the Philippines, a unit of Fitch Group expects the move to be credit positive in the long-term for the Aboitiz-led bank, but noted the deal’s immediate impact on capital.
In a commentary, CreditSights said UnionBank will benefit from the injection of its Citi's local consumer assets into its pool, as the latter's 'product expertise' gave it a strong presence in the domestic retail market.
"Citi’s local consumer business would be a great complement to any of the smaller banks in general, as its larger scale and greater strength in the upscale consumer market and wealth management businesses would mean few overlaps with the existing retail units of the smaller banks,” CreditSights said.
“Furthermore, product expertise has given the Citi franchise a strong foothold in the retail market...," it added.
The deal between UnionBank and Citi will include the American banking giant’s local credit card, personal loans, wealth management, and retail deposit businesses.
Part of the package, which will see UnionBank shell out P55 billion for the acquisition, includes the real estate assets of Citi in the country, Citibank Square in Eastwood, Quezon City, three full-service bank branches, five 'wealth' centers, and two bank branch 'lites.'
"In the near term, the capital impact of the acquisition is significant and likely to result in a relatively thin buffer, especially in the current uncertain operating environment," the Fitch Unit’s report added.
All of Citi's 1,750 consumer bank employees, including senior management, will join UnionBank's ranks once the acquisition is complete. CreditSights praised UnionBank's move to integrate Citi's local team since it will "ensure that the key aspects which made the Citi consumer franchise successful in the Philippines are not lost during the integration process," so as to minimize the plight of Citi's customers brought from the deal once completed.
UnionBank, a joint consortium between the Aboitiz Group, government-owned Social Security System, and Insular Life, will pay Citi cash for assets, which were valued at P9.7 billion but this will pile on a premium of P45.3 billion, expected to be completed by the second half of this year.
The Fitch unit said "this is a meaningful acquisition for a bank the size of UnionBank and the premium to be paid is considerable," especially since the move would not have materialized without the strong urging of its largest shareholder, the Aboitiz Group.
Broken down, the deal would boost UnionBank's retail business, as CreditSights sees it. The bank's rank would rise to the 9th spot as largest in terms of asset size post-acquisition while its credit card segment would be catapulted to third or fourth, as it would absorb Citi's 1 million credit cardholders, valued at P55 billion.
CreditSights said that by 2023, a full year into Citi's integration, executives at UnionBank expect P6 billion in net income.
"Any medium-sized bank that absorbs the Citi business stands to fast track growth and benefit from a unit that is already capital accretive from Day 1," the Fitch unit said.
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