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Citigroup to Buy Taiwan's BOOC for $426 Million

Citigroup said it will pay 14.1 billion New Taiwan dollars (US$426 million) for Taiwan's Bank of Overseas Chinese (BOOC), its third Asian purchase in recent months as it looks to boost overseas earnings.

Citigroup's U.S.-based Chief Executive Charles Prince said last month he wanted to increase earnings from foreign markets to up to 65% of its total from a current 45%.

"The most important global strategy for Citi is to expand our international presence and profitability. It is the same strategy we are using in Taiwan," the group's Taiwan country officer Morris Li told a news conference on Monday to announce the deal.

The acquisition reflects a broader worldwide consolidation as major global players beef up their international portfolios, particularly in fast-growing Asian markets.

Citigroup, the world's most valuable bank, is also buying Nikko Cordial, Japan's No. 3 brokerage, for $14 billion and, in November, it led a group buying control of China's Guangdong Development Bank for $3.1 billion.

Citigroup also plans to raise its stake in Shanghai Pudong Development Bank to 19.9% from below 5%. "Banks have to get bigger and bigger in order to compete worldwide," said Wayne Pai, chief executive of Polaris Financial Group, a major BOOC shareholder. "Citi has been active in China, an important move for its global expansion."

Undervalued

News of the deal pushed BOOC stocks up 2.2% to a five-month high of T$11.50, but still below Citigroup's all-cash T$11.80 per share offer -- which was set at a 5 percent premium to BOOC's Wednesday close.

The acquisition will boost Citigroup's Taiwan-based assets to $22.8 billion, ranking it 13th on the island, and increase its number of branches to 66 from 11.

Multinational lenders see Taiwan as a springboard to China's fast-growing market, which is also home to a large Taiwanese business community.

Last year, Standard Chartered bought Hsinchu International Bank for US$1.2 billion. Others said to be interested in the market include HSBC and Singapore's Temasek according to media reports.

Foreign banks also like Taiwan banks' valuations, which are among the lowest in the greater China region following a consumer credit crisis that put many players into losses, analysts said.

Taiwan banks trade at an average 1.3 times 2007 price to book, versus 2.13 times for HSBC, 2.4 times for Bank of China and three times for China Construction Bank, according to Yuanta Core Pacific Securities.

Citigroup paid three times 2007 price to book for BOOC, said Nora Hou, an analyst at Nomura Securities, adding: "Citi is anxious to close the deal as BOOC is probably the only Taiwan lender willing to give up its management control."

Citigroup previously acquired, and later sold, a 15% stake in the banking arm of Taiwan's Fubon Financial, reportedly abandoning the investment due to control issues.

Citigroup said it will set up a subsidiary to buy BOOC, with completion set for the second half of this year. The deal is subject to Taiwan and U.S. regulatory approval.

Citigroup's Morris Li said BOOC should turn a profit next year. In the 2006 first quarter, the bank posted a net loss of T$510 million.

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