Shares in Malaysia's biggest lender, Malayan Banking, tumbled to a 3-1/2-year low on Thursday after it offered to buy Bank Internasional Indonesia (BII) for $2.7 billion.
Maybank surprised investors on Wednesday by saying it would pay $1.5 billion for 56 percent of Indonesia's sixth-largest lender, a 23 percent premium, and would offer to buy out the bank's minority shareholders for $1.2 billion.
"The price tag ... was more than 50 percent higher than we assumed for a mediocre franchise," Citigroup said in a research note, downgrading Maybank to a sell from a buy.
It slashed Maybank's target price to 8.38 ringgit a share from 10.63 ringgit.
Maybank shares fell as much as 11 percent to 8 ringgit a share in the first few minutes of trade, their lowest level since August 2004. By late morning, the stock was down about 7 percent at 8.30 ringgit. The stock had been suspended from trade on Wednesday pending news of the acquisition.
Maybank paid about 4.6 times book value for a foothold in Southeast Asia's biggest economy, expensive even when compared with Chinese banks that fetch between 3.3 and 5.4 times book.
But Maybank is moving late to fulfill its ambitions to become a regional force in banking. In recent years, its rivals moved into countries such as China and Indonesia at lower prices.
Credit rating agency Fitch put Maybank's creditworthiness on watch after the deal, which it said could almost halve the bank's Tier 1 capital adequacy ratio and force it to raise capital.
"The impact of goodwill arising from the acquisition is expected to be substantial ... and could potentially reduce Tier 1 and total capital adequacy rations of Maybank on a consolidated basis by about 400 basis points," Fitch said.
Maybank's Tier 1 and overall ratios were 9.2 percent and 13.3 percent, respectively, at Dec. 31, it added in a statement.
Maybank has said it would fund the deal internally, and that it would continue to look for more acquisitions, but Fitch said the bank was likely to have to raise capital to reinforce its balance sheet after the BII deal.
Credit Suisse analyst Danny Goh said the deal would empty the warchest that Maybank has amassed for acquisitions.
"Combined with its recent Vietnam acquisition, the total outlay for acquisitions of up to $2.8 billion would more than consume all of management's $2 billion of excess funds set aside for acquisitions," Goh said in a client note. "We estimate that the goodwill on the acquisition would also bring down the core capital ratio at Maybank to less than 6 percent from 9.2 percent."
However, both Citigroup and Fitch were bullish on the Indonesian market's long-term prospects, and Fitch said the acquisition would help to diversify Maybank's business over time.
Global banks are converging on the world's fourth-most populous nation to take advantage of economic growth running at over 6 percent, which is spurring loan demand and potential earnings for its financial sector.
But Citigroup said Maybank had paid a high price for a tough challenge to turn BII around, saying the Indonesian bank had a mediocre deposit franchise, a small branch network in the major cities and high exposure to risky motorcycle finance.
One question mark that had loomed over the deal was removed on Thursday when South Korea's Kookmin Bank said it would sell its 14 percent stake in BII to Maybank. Kookmin had also been bidding for a stake in the Indonesian lender.
BII shares rose 1 percent to 470 rupiah after a 12 percent gain on Wednesday pushed them to their highest level since late 2000.