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Mergers, Acquisitions and Takeovers Case Study

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Case Title:

Citigroup’s Acquisition of Guangdong Development Bank: A Strategic Move in China?

Publication Year : 2006

Authors: Rajan Shah, Ruchi Mankad

Industry: Banking, Insurance and Financial Services

Region:China

Case Code: MAA0106A

Teaching Note: Available

Structured Assignment: Available

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Abstract:

Citigroup, a leading global financial company with 200 million customers in more than 100 countries had total revenues of $83.6 billion in 2005. Citigroup operated in four major business groups: Global Consumer, Corporate and Investment Banking, Global Wealth Management and Citigroup Alternative Investments.

Citigroup was the first American bank to establish its operation in China in 1902. Gradually, it became one of China’s largest and most important banks. But due to Chinese banking regulations, Citigroup was not able to offer many of its services. To strengthen its operations in China, Citigroup acquired 5% stake in Shanghai Pudong Development Bank for $67 million in December 2002, and Citigroup led consortium acquired 85.6% stake in Guangdong Development Bank (GDB) for 24.267 billion Yuan (US $3.06 billion) in November 2006. Citigroup retained the majority stake in the acquisition. GDB, a mid-size national bank with assets of US $47.9 billion and 12 million customers had extensive network of 500 branches throughout China. It also had significant Small and Medium Enterprise cardholders. But, GDB faced weak capitalization and high level of non performing loans. Its capital adequacy ratio was also below regulatory requirement.

The case leads the discussion on Whether Citigroup at the face of competition having strong presence in China for over 140 years would be able to capitalize on the acquisition of GDB and strengthen its presence in the Chinese banking sector?

Pedagogical Objectives:

  • To understand inorganic growth strategy
  • To understand government policy and its impacts in Chinese banking sector
  • To discuss the competitive scenario.

Keywords : Mergers,Acquisitions,Alliances Case Study;Citigroup; Citigroup in China; Merger and Acquisition; Expansion Strategy; Growth Strategy; Guangdong Development Bank (GDB); Foreign Banks in China; Self Service Banks in China; Minibanks in China; Local Currency Business; The People’s Bank of China; China Banking Regulation Commission (CBRC); Non Performing Loans; “Big-Four Banks in China; Competitive Banks; Joint Venture; Guangdong Province; Shenzhen; HSBC

Contents : 
The Chinese Banking Sector
China’s Banking Structure
A Strategic Move: Acquisition of Guangdong Development Bank
Key Events in China’s Banking Reform
Major Developments and Achievements
Citigroup: Revenue Contribution by Geography in Asia
Citigroup’s China Snapshot
Foreign Competitiors for Citigroup in China

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