CITIGROUP BANKS ON GROWTH IN CHINA

HEADNOTE

UNITED STATES/CHINA

Citigroup chief executive Charles O. Prince told an investor conference in New York in December that the bank has a plan to boost the share of its profits that comes from its overseas

operations. Thus it came as no big surprise a few weeks later when a consortium led by Citigroup raised its bid for an 85% stake in China's Guangdong Development Bank to $3 billion. If completed, the deal would make Citigroup the first overseas investor to buy control of a state-run bank in China, where economic growth has averaged 9.5% for the past 25 years.

The Chinese government, which had imposed a 20% cap on foreign ownership of domestic banks, was expected to grant Citigroup an exception because of the large amount of non-performing loans on the books of medium-size Guangdong Development Bank. Citigroup and its local partners bid about twice the bank's book value, topping offers from France's Socit Gnrale and China's Ping An Insurance. Singapore-based DBS dropped out of the bidding a few weeks earlier.

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Charles O. Prince

Citigroup's interest in China also was apparent in late December, when it agreed to quadruple its stake in Shanghai Pudong Development Bank to 19.9%, at a cost of about $875 million. Prince has said that he expects China's future growth to be led by consumer spending, and the bank is expected to focus on home loans, auto loans and credit cards.

Guangdong, which is near Hong Kong, has the highest per capita income in China after Beijing and Shanghai.

Citigroup was anxious to catch up with rivals HSBC and Bank of America, which had bigger investments in China, analysts say. Foreign banks are stepping up their investments in China ahead of the full opening of its banking sector to overseas competitors later this year.

-Gordon Platt