National Bank of Abu Dhabi and First Gulf Bank said they’re in talks to merge in a deal that would create the largest lender by assets in the Middle East.
A group of senior executives from each of the banks is reviewing the commercial, structural and legal aspects of a potential transaction, according to a filing to the Abu Dhabi stock exchange yesterday. Bloomberg News was first to report the two lenders were considering a merger on June 16.
A deal would create a lender with assets of about $170bn and mark the first major banking merger in the UAE since National Bank of Dubai and Emirates Bank International combined in 2007 to create Emirates NBD. The country’s fragmented banking industry is ready for consolidation and a deal could prompt further transactions among lenders, according to investment bank EFG-Hermes Holding.
“There’s no doubt it will lead to synergies and would give them a competitive edge, considering there are more than 40 banks in the UAE,” Chiradeep Ghosh, a banking analyst at Securities & Investment Co in Bahrain, said by phone yesterday. “The combined entity will have a bigger equity book. That will help them to lend to larger entities and take up a greater share of the syndicated loan book.”
Credit Suisse Group is advising state-controlled NBAD while UBS Group is working with FGB, people familiar with the matter said, asking not to be identified because the information is private. NBAD, FGB and Credit Suisse declined to comment, while UBS wasn’t immediately available to comment.
NBAD is the UAE’s second-biggest bank by assets, while FGB is fourth-ranked. A combination would help them overtake Emirates NBD as the country’s largest lender and represent nearly a quarter of the system’s loans and deposits, according to EFG-Hermes.
The UAE is home to about 9mn people and has about 50 banks, including the local units of Citigroup, HSBC Holdings and Standard Chartered. Both NBAD and FGB have pushed to expand in other countries to beat the limitations of a small home market and build investment banking businesses to compete with bigger foreign rivals.
“We assume the merger is motivated by the complementary balance sheets and the scope for economies of scale in a crowded UAE banking sector,” Fahd Iqbal, head of Middle East research at Credit Suisse, said in an e-mail yesterday. NBAD would benefit from FGB’s “focused and profitable retail franchise,” while FGB would benefit from NBAD’s liquidity and low funding costs, he said.
NBAD was the fifth-biggest arranger of syndicated loans in the six-nation Gulf Cooperation Council last year, while FGB ranked seventh, according to data compiled by Bloomberg. NBAD was also the second-largest arranger of bonds and sukuk sales last year. The loan league tables are dominated by foreign lenders including HSBC Holdings, Citigroup and Sumitomo Mitsui.
NBAD, with a market value of about $11.3bn at the end of Thursday, is 69% owned by sovereign wealth fund Abu Dhabi Investment Council. State-owned investment fund Mubadala Development is the biggest shareholder in FGB with a 7% stake. The bank’s market value is about $14.4bn, according to data compiled by Bloomberg.
The news is “a surprise considering, they have a very contrasting style of management and business strategy,” Ghosh at SICO said. “One is a public-sector focused bank, while FGB is an aggressive private sector bank, with reasonable focus in consumer lending. FGB primarily operates within the UAE, while NBAD is looking to expand outside the UAE.” Pages 2, 12


Bank stocks add $4bn in a day after merger talks


Plans to create one of the Middle East’s largest lenders by assets spurred more than $4bn of gains in Abu Dhabi banking stocks in one day, Bloomberg reported.
National Bank of Abu Dhabi and First Gulf Bank led the surge yesterday after the lenders said in a joint statement they’ve formed working groups to explore a potential merger. Financial institutions including Abu Dhabi Commercial Bank and Union National Bank joined the rally amid speculation the move may be the start of a new phase of consolidation in the UAE’s banking industry.
Abu Dhabi-listed banks added 15.96bn dirhams ($4.35bn) to their market value, according to Bloomberg calculations. NBAD, as the bank is known, led the way with a 15% surge – the most allowed in a single day – increasing its market value by 6.25bn dirhams. FGB rose 11%, boosting its worth by 6.08bn dirhams.