The Australian brokerage has pencilled in DBS Bank Ltd, Oriental and Commercial Bank of China (OCBC) and Standard Chartered (StanC) as the most likely cross-border buyers for a bouquet of assets across Asia.
Macquarie has considered a 0.9 to 1 times price to book for its aggregate valuation across Asia which does not include Poland, Russia and Bahrain where Citibank does not have a significant presence.
Macquarie’s analysts estimate Citi’s total consumer business loans in India at $4.20 billion with tangible equity of $727 million. It has estimated a valuation of 2.7 times price to book at the top end to 2.4 times the price book at the bottom for the Indian business, the most expensive among the ten markets its analysed.
DBS would have interest in India, Indonesia, China and also Taiwan because of its existing operations in these markets and stated strategic focus in Asia.
“In India, we expect both foreign and domestic interest. Amongst the domestics, our Indian financials we believe that the larger private banks ICICI, Kotak, Axis, and IndusInd will be interested parties. HDFC Bank seems less likely to us to entertain a bidding war. SBI Cards would also be interested however its stand-alone structure may be an impediment,” Macquarie said.
The brokerage said smaller banks like RBL and IDFC First Bank will struggle to fund a price tag of more than $1bn for the cards business, the most lucrative in the bank’s India basket.
“In India, SBI Cards trades at a market cap equivalent to $1,000 per card. This is a demanding valuation, reflecting a scarcity premium and scale (ie. number 2 by market share) of SBI Cards. Applying this to Citi’s 2.7m cards in India would imply a valuation of US$2.7bn. This is above the top end of our valuation. To the extent that a single buyer is able to purchase multiple businesses at once, we would expect some sort of valuation discount in order to expedite Citi’s exit,” the brokerage said.
Macquarie has taken into account profitability, product mix, business quality and listed peer trading competitors to determine the valuations.
Citibank’s share of consumer loans is only 1-3% in most markets. Macquarie estimates that in the 13 markets Citi is exiting, the bank has assets of $82 billion, loans of $56 billon and wealth management assets under management $32 billion. It also has $ 56 billion deposit base across these markets.
It expects the bank to consider selling these businesses in parts. “Overall, we consider Citi’s consumer assets to be attractive to buyers. As the deal does not come with bank licenses nor distribution, the sale is likely to take place in fragments.
Citi’s consumer assets in Asia-Pac are typically skewed to credit cards and mortgages, along with modest retail deposits and wealth management. Cards customers are typically above-average spenders and branch numbers are low. Across the region, there are very few banks who have the requisite footprint to bolt-on all of,” Macquarie said.
Local lenders in these markets will be eyeing only limted exposure to these assets due to a range of challenges including capital shortage, weak organic profitability, distractions of existing integrations, and trade union pressure.