Citigroup Inc, the world's biggest financial services company, won approval from shareholders of Shanghai Pudong Development Bank Co to increase its stake in the Chinese lender to 19.99 percent.

 

Shareholders meeting in Shanghai yesterday also agreed to free Citigroup from an exclusivity clause that prevents the US company from investing in a second Chinese bank. Investors representing 2.27 billion shares, or 99.47 percent of those voted, approved the agreement, Pudong Bank Chairman Jin Yun said.

 

A larger stake in China's second-biggest publicly traded lender will help New York-based Citigroup catch up with rivals such as HSBC Holdings Plc in a banking market with US$1.7 trillion in household savings. Overseas banks are scrambling to expand in the world's fastest-growing major economy as the government prepares to lift restrictions at the end of this year.

 

Pudong Bank, in which Citigroup bought a 4.6 percent stake in 2003, will sell new shares to the US company at a price to be determined by the market after completing a plan to convert its non-tradable stock into common shares, Jin said, without giving a date. Pudong Bank will also sell 700 million new shares to the public before Citigroup raises its stake, he said.

 

Under the agreement approved yesterday, Citigroup will set up a card-processing platform for its credit-card venture with Pudong Bank. Citigroup will be prevented from carrying out similar cooperation with Guangdong Development Bank, in which it is bidding to buy a stake, before 2008.

 

Citigroup has so far issued about 300,000 credit cards with Pudong Bank, less than half the 650,000 similar cards sold by HSBC and partner Bank of Communications Ltd. Citigroup owns six branches in China, compared with 12 operated by HSBC.

 

Citigroup Chief Executive Officer Charles Prince, 55, said in November that the bank is seeking to avoid buying anything less than majority control of Chinese finance companies.

 

The New York-based lender is leading a bid of about US$3 billion for 85 percent of insolvent Guangdong Development Bank, a lender with 480 outlets in southern China, the nation's wealthiest region. Any bid by Citigroup for another lender needed approval from Pudong Bank because the exclusivity agreement barred it from owning a stake in a second Chinese bank.

 

Citigroup will nominate two directors to Pudong Bank's board under yesterday's agreement, including a vice-president.

 

Citigroup announced its intention to quadruple its stake in December, an increase that would have made it the largest shareholder. A month later Pudong Bank said six State-owned shareholders planned to sell their stakes to Shanghai International Group Co. The sale, which is pending regulatory approval, would give the Shanghai government investment arm a 20.8 percent stake.

 

Pudong Bank, with less than 3 percent of the assets of Citigroup, is targeting 18 percent annual earnings growth for the next five years, after posting an average 22 percent gain in the previous five-year period. The company's bad-loan ratio was 2.2 percent on September 30, compared with 3.9 percent at China Construction Bank Corp, the nation's third-biggest lender, as of June 30.

 

Pudong Bank's net income rose 29 percent in 2005 to 2.49 billion yuan (US$309 million) and revenue gained 28 percent to 21.5 billion yuan.

 

Jin also said yesterday that the bank's planned fund management venture with Axa SA, Europe's second-largest insurer, will receive approval soon.

 

(China Daily February 16, 2006)