HENRY SY SR., the country’s biggest retailer, is about to become the nation’s largest banker.  On November 6, 2006, the respective boards of Banco de Oro (BDO) and Equitable PCIBank agreed to merge the two banks with BDO as the surviving entity.

The deal creates the country’s largest bank with total resources of P610 billion, capital of P57.42 billion, loan portfolio of P255.25 billion, fund sources (deposits and trust funds) of P555.72 billion and gross loan portfolio of P255 billion. 

In assets, BDO-Equitable will be bigger than Metrobank’s P593.89 billion by P16 billion, and Bank of PI’s P536.8 billion, by P74 billion.  In capital, BDO-Equitable’s P57.42 billion will be  bigger than Metrobank’s P53.1 billion by P4.32 billion, but smaller than BPI’s P57.55 billion, by just P130 million. 

In total fund sources (traditional deposits plus deposit substitutes plus trust funds), BDO will be smaller than BPI’s P618.86 billion, by P63 billion, and Metrobank’s P614.11 billion, by P58.39 billion. 

In gross loan portfolio, BDO-Equitable’s is smaller than Metrobank’s P334.36 billion by P79 billion, but ahead of BPI’s P237.9 billion by P17.35 billion.  However, Sy could merge China Bank with BDO-Equitable to create a mega-bank with P78.86 billion in equity, P699.72 in fund sources and P753.3 billion in total resources.  Sy, through his holding company, SM Investments Corp., has P28.5-billion investments in banking—P12.13 billion in BDO, P11.64 billion in Equitable PCI and P4.77 billion in China Banking.

In effect, with just P24 billion of investments, Henry has acquired a P610-billion bank, a leverage of 25 times his money. Not a bad deal at all.  As of September 30, 2006, SMIC owned 47 percent of BDO, 26 percent of Equitable and 19 percent of China Bank. In 2005 SMIC acquired 24.03 percent of EPCIB for P9.94 billion.

On December 30, 2003, SMIC agreed to buy the Social Security System’s 25.8 percent in Equitable. The deal is pending in the courts.  On August 29, 2006, SMIC made a tender offer to acquire up to 401.1 million shares of Equitable representing 55.16 percent.

GSIS sold its 12.7-percent stake, EBC Investments another 10.84 percent. On October 2, 2006, SMIC bought 377.7 million shares, or 51.96 percent of Equitable for P34.7 billion under its tender offer.  In the nine months through September 30, 2006, SMIC posted revenues of P45.5 billion, up 18 percent, and profits of P7.5 billion, up 38.2 percent.

The revenues were boosted mainly by retailing sales, which increased 6.8 percent to P28.3 billion during the nine months. SMIC opened SM San Lazaro and SM Sucat in 2005; SM Santa Rosa, SM Clark and SM Mall of Asia early 2006, and SM Lipa in September.  Standard & Poor’s says that if the merger deal succeeds, Equitable PCI’s debt rating could rise, while Banco de Oro’s ratings will remain unchanged.

Equitable PCI’s debt rating is currently a B, five notches below investment grade. Banco de Oro has a B+ rating.  UBS hails the deal as a “win-win situation�? for BDO and Equitable. It will increase Equitable’s capital adequacy ratio (CAR) without it having to raise more capital, making the deal timely under IAS.

The share price of Equitable would increase to P73.60, more than the fair value target price of P67.  BDO itself will become a large-capital company, like firms with 0 minimum capital. Its market cap would be billion and with branch network of 685. 

For the first nine months of 2006, SMIC made P7.5 billion, up 38 percent, on revenues of P45.5 billion, up 18 percent.  It opened two malls in 2005, San Lazaro and Sucat and another four in 2006—Santa Rosa, Clark, Lipa and Mall of Asia.