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Citigroup’s China gamble

The US bank has finally got what it wanted – but it remains to be seen what happens now with GDB.

At last the fate of Guangdong Development Bank is known. Last month the bank, based in southern China, accepted a $3.1 billion bid for an 85.6% stake from a consortium led by Citigroup. The bid beat off a rival one put forward by another group, led by French bank Société Géneralé, and ended 16 months of uncertainty.

For Citigroup, whose own stake in GDB will be 20%, the outcome will come as a great relief. The bank is already paying catch-up against some of its rivals in China, most notably HSBC, which has a 19.9% stake in Bank of Communications, the mainland’s fifth-biggest lender. Failure in its bid for GDB would have left a massive hole in Citigroup’s emerging markets, nay global, strategy – one that it might have struggled to properly fill.

It is worth pointing out that Citigroup is pursuing a very different China strategy to that of many of its main rivals. While banks such as HSBC, Bank of America and Royal Bank of Scotland have taken stakes in the big-five state-owned lenders and have seen the value of their shares soar following successful IPOs by their investments, Citigroup has focused on the middle market.