The Convergence of Prime Banking: Finding Ways to Be the Bank of Choice:

1. The Convergence of Prime Banking: Finding Ways to Be the Bank of Choice: The Merging and Acquisition of Banco De Oro and Equitable PCI Bank

2. Introduction • The Banking Industry in today’s era has been experiencing rapid growth and changes. • Many financial institutions feel the urge of merging and acquiring as a way of competing with a growing array of strong financial service providers such as banks, insurance companies, mortgage companies, etc.

3. Banco De Oro • BDO, known as Acme Savings Bank, was acquired by the SM Group in 1976. • Until 5 August 1996, when it was granted full universal bank status, the Bank’s main business was providing traditional loan and deposit banking services to the middle-market segment, including corporate suppliers of SM.

4. BDO listed its shares in the Philippine Stock Exchange (PSE) on 21 May 2002. • On June 15, 2001, BDO merged with Dao Heng Bank's Philippine subsidiary, with BDO as the surviving entity. • As of 29 December 2005, Banco de Oro ranked 5th in terms of resources and loans, 6th interms ofdeposits, and 8th in terms of capital among the 41 commercial banks in the industry.

5. EQUITABLE PCI BANK • Equitable PCI Bank is a commercial bank with an expanded banking license. • It is the third largest private domestic bank in the country in terms of resources, capital, deposits, and loans. • Offering traditional and innovative deposit products and services, cash management, international banking, commercial and corporate banking, money market, trust and treasury services, the Bank caters to the needs of corporate, middle market, and retail clients.

6. Combining the individual strengths of Equitable Bank and PCI Bank, the merger in 1999 created a strong presence insignificant market segments particularly the corporate and Filipino-Chinese middle market. • Moreover, Equitable PCI Bank’s extensive distribution network provides the critical mass to further fortify the Bank’s position in the consumer/retail sector as it presents increased opportunities for cross-selling other retail products.

7. MARKET POSITION • Equitable PCI Bank enjoys many advantages as the third largest private domestic bank in the Philippines. • The Bank has had a long history of financial strength and stability and holds leading positions in key business segments. • It has a strong position in the middle market and in the corporate market. It enjoys a large presence, wide customer base, and extensive distribution network. The Bank has a base of diversified well-established financial services businesses, which further bolster its position

8. In credit cards, Equitable Card Network dominates the local credit card industry as merchant acquirer, and third party processor. • This provides good scope for the Bank to increase its retail lending. • PCI Leasing and Finance is one of the most profitable finance companies with a high capital base and wide reach.

9. PCI Capital Corporation is well recognized for being a dominant player in investment banking • Capitalizing on its size and large customer base, the Bank also continues to invest in technology and is able to take advantage of economies of scale.

10. RETURN ON ASSETS • EPCI BEFORE MERGING = 0.179150% • BDO BEFORE MERGING = 1.088067% • BDO AFTER MERGING = 0.707700%

11. NET INTEREST MARGIN • (EPCI AS OF 2005) = 0.8183% • (BDO AS OF 2005) = 2.9273% • (BDO AS OF 2009) = 3.5496%

12. THE BANCO DE ORO EQUITABLE PCI BANK MERGER • A plan by the SM Group of Companies and Banco de Oro Universal Bank to merge with Equitable PCI Bank • Last November 2006 their respective Board of Directors passed resolutions approving a plan to merge the two companies

13. The combination of the branch networks and other businesses of BDO and EPCI will enable them to: • To serve its customers better and more efficiently than either institution alone • To invest in the most up-to-date technology and develop more innovative products which will benefit both retail and corporate customers • Will be better able to upgrade its risk management and IT systems in order to address Basel II requirements.

14. Grounds for Merger and Acquisition • A merger with EPCI would transform BDO into a dominant industry player, possessing market leadership and operational scale while enhancing shareholder value through a potential re-rating in the share price and reduced funding cost.

15. From BDO- BDO universal

16. Osmena v. Social Security Commission, G.R. No. 165272, September 13, 2007 • On August 5, 2005, Banco de Oro and SM Investments Corporation, another member of the SM Group, acquired 24.76% of Equitable PCI shares from the Go family, the family that founded Equitable PCI. 

17. On January 6, 2006, Banco de Oro offered to buy the rest of Equitable PCI for 41.3 billion pesos through a share swap option, with Banco de Oro as the surviving entity. Under the deal, every one Equitable PCI share would be swapped for 1.6 Banco de Oro shares or, in a second option, an independent accounting company would determine the swap ratio on the book values of both banks under International Accounting Standards.

18. On November 6, the respective boards of Banco de Oro and Equitable PCI Bank agreed to the merger of both banks through a modified stock swap deal. Instead of the original 1.6 shares Banco de Oro would swap for, it would swap 1.8 shares for every Equitable PCI share • On December 27, 2006, Banco de Oro shareholders approved the merger with Equitable PCI Bank. Equitable PCI Bank shareholders also approved the merger the same day. In order for the merger to take effect, approval from both the BangkoSentral and the Securities and Exchange Commission is required, which was obtained in early 2007.

19. Regulatory approval from the Bangko Sentral was granted on April 25, 2007. • On May 31, 2007, trading of Banco de Oro and Equitable PCI Bank shares were suspended, with Equitable PCI Bank shares being delisted from the PSE • Equitable PCI Bank branches are in the process of becoming Banco de Oro branches. The legal name of the bank remained Banco de Oro-EPCI, Inc. until February 2008, when it was finally named Banco de Oro Unibank, Inc.

20. THE EFFECTS OF THE MERGER • PROS - Banco de Oro would move up into large capitalized company status, defined as a company whose capital stands at a minimum of $700 million. The merger of both banks would result in the merged company having a market capitalization of two billion dollars. - The new Banco de Oro would have a total of 685 branches and a wide-reaching ATM network. Thus, a wider convenience to both BDO and Equitable customers.

21. THE EFFECTS OF THE MERGER • CONS - Transition could mostly result with the conversion of ATMs: Equitable PCI Fastellers are linked to MegaLink while Banco de Oro Smartellers are linked to Expressnet. Also, Equitable PCI ATM cards are linked to Visa Electron and/or PLUS while Banco de Oro ATM cards are either local or, in the case of the new BDO International ATM Card, linked to MasterCard (branded as MasterCard Electronic), Maestro and Cirrus. - It would trigger a wave of mergers and acquisitions that could result in an oligopoly, with only few competitors

22. BANGKO SENTRAL NG PILIPINAS on BDO-EPCI • “The proposed merger of BDO and EPCI will create a bigger and stronger institution which will be among the leaders in the industry. It also continues the process of consolidation, which we believe is positive for the Philippine banking system.” -Governor Amando Tetangco, Bangko Sentral ng Pilipinas

23. “The merger of BDO and EPCI raises the bar of competition for the Philippine banking industry. It is good for financial stability and good for customer service.” -Deputy Governor Nestor Espinilla , Bangko Sentral ng Pilipinas

24. SECURITIES AND EXCHANGE COMMISION

25. has approved the merger of Banco de Oro Universal Bank and Equitable PCI Bank with BDO • renamed as Banco de Oro-EPCI, Inc

26. 698 branches • 1,171 Automated Teller Machines (ATMs) nationwide • third largest in the country in terms of branch network.

27. In 2001, the bank acquired the Philippine subsidiary of Dao Heng Bank, growing its branch network by 12. • In April 2005, the bank further expanded by acquiring branches of United Overseas Bank .

28. Ranking (Source Business World)

29. RANKINGS (as of 2009) Assets

30. Deposits

31. THANK YOU!  • CATAJAN, Dianne Isabelle • ESPERA, Hazel • FABIAN, Paulo Carlo • GUCE, Joanna Melissa • LOZADA, Marie Fe Giriel • MADRIAGA, Ronellyn • MANALILI, Erika