Citigroup Leads Bid to Buy Bank In China

NEW YORK, Dec. 30 -- A consortium led by Citigroup Inc. bid $3 billion for a controlling stake in China's Guangdong Development Bank, a Chinese business magazine reported Friday. If completed, the deal would be among the largest foreign investments ever in China.

Citigroup's stake could exceed the 20 percent cap the Chinese government usually imposes on foreign ownership of domestic banks, the magazine, Caijing, reported. It said the exception would be granted because of Guangdong Development Bank's troubled finances.

The $3 billion price would be twice the bank's book value, indicating the fervor with which foreign banks are going after China's burgeoning consumer market. Citigroup is mounting its bid along with local Chinese partners.

Guangdong Development Bank, a mid-size lender, is considering two other bids, the magazine said: France's Societe Generale SA and China's Ping An Insurance Co. Citigroup spokeswoman Shannon Bell declined to comment. Officials at the Guangdong Development Bank could not be reached.

Citigroup would not have the field to itself in China.

In June, Bank of America paid $3 billion for a 9 percent stake in China Construction Bank. Citigroup competitor HSBC Holdings, a longtime player in China, bought a stake in insurer Ping An earlier this year. Deutschebank and the Royal Bank of Scotland, among others, are also major competitors to Citigroup for consumer and corporate business in China.

Richard X. Bove, a banking analyst at Punk, Ziegel & Co. in New York, said the detailed report in the Chinese magazine suggests that an agreement with Citigroup is nearly final. "I think the deal is done," he said. "The information coming out of China is so specific now that people aren't guessing anymore."

Bove said acquiring a large stake in Guangdong would give Citigroup a leading position among U.S. banks in tapping into China's growing economy.

"The point is that Citigroup now has an on-the-ground position that is superior to other foreign banks. Others are going to follow, but Citi now has an advantage to start pushing auto loans and home loans and credit cards and all the things that consumers in other nations benefit from," Bove said. "I think it's a massive plus for them even though they probably overpaid for it."

Citigroup chief executive Charles O. Prince III, who took over as head of the world's largest bank in 2003, has repeatedly said most of the firm's growth over the next decade will be abroad. Citigroup operates in more than 100 countries. The company has added numerous internationally minded executives in recent months, including former World Bank president James D. Wolfensohn, who joined in November as a global strategy adviser.

Continued regulatory problems, such as the recent closing of Citigroup's private bank in Japan, have weighed on the company's stock. The bank has also suffered from the perception that it is too big to grow.

Prince has divided his time between attempting to improve Citigroup's regulatory compliance and expanding the firm through international acquisitions. The Guangdong Bank investment would follow Citigroup's announcement earlier this week that it plans to quadruple its stake in Shanghai Pudong Development Bank to 19.9 percent, the largest amount allowed by law.