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Citigroup Inc. expansion continues with Chile deal

Citigroup has agreed to pay up to $2bn for a stake of up to 50 per cent in the company that controls Banco de Chile, the second-largest bank in Chile.

Citi will fold in its existing business in Chile, giving the enlarged bank about 20 per cent of the Chilean market, roughly level with Santander of Spain. The decision is the latest in a series of deals by Chuck Prince, Citi's chief executive, that has expanded the world's largest financial services group's presence in central America, Japan, Turkey, Taiwan and the UK.

Citi on Friday announces its second-quarter earnings which are expected to show the impact of stepped up investment combined with tougher cost control. Investors hope for another good performance from the markets and banking business where growth has caught up with its leading Wall Street rivals in recent quarters.

Manuel Medina-Mora, Citi's chief executive for Latin America, said the model for the Chile deal was Banamex, the second biggest bank in Mexico, which Citi bought in 2001. "As we did successfully with Banamex in Mexico, we will blend Citi's global products and capabilities with Banco de Chile's leading brand, local expertise and distribution platform," he said

Citi will buy an initial 33 per cent in LQIF, which has 52 per cent of the voting rights and a 30.5 per cent economic interest in Banco de Chile. Citi has an option to acquire up to 50 per cent of LQIF within three years. LQIF is wholly owned by Quinenco, a quoted holding company controlled by the Luksic family. Quinenco is known to have talked about a tie-up with other international banks including HSBC and BBVA.

Although Citigroup has a presence in more than 100 countries, it has only small market shares - except in Mexico. It is keen to increase its share in important markets such as Chile, where it has about a 2 per cent share. For the initial stake, Citi will contribute its Chilean business, valued at $701m, and other assets worth $192m. It will also buy Banco de Chile's US businesses for $130m. The option to buy the further 17 per cent of LQIF would cost $900m.

Date: 23.07.2007 [59]
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