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Emirates NBD Price Estimate Cut 20% at HC on Loan Losses, Amlak

Emirates NBD PJSC, the United Arab Emirates’ biggest bank by assets, had its price estimate cut 20 percent at HC Brokerage, citing rising loan-loss charges and a possible acquisition of mortgage lender Amlak Finance PJSC.

“We think an Emirates NBD acquisition of Amlak has become more likely and believe Emirates NBD may also have to absorb some of the refinancing needs of government owned entities in 2012, particularly if European and U.S. banks reduce their exposure to the region,” analysts Jaap Meijer and Kareem Ghaly wrote in a note dated today.

The shares of Amlak Finance, an Islamic mortgage company part-owned by Emaar Properties PJSC, were suspended in November 2008 after the global credit crisis blocked their access to borrowings. A government committee studying an overhaul of Amlak “continues to explore the possibilities of a balance-sheet restructuring,” the company said in November.

Emirates NBD’s price estimate was cut to 3.9 dirhams from 4.9 dirhams “to reflect the bank’s relatively poor earnings outlook, a potential increase in the concentration risk of its loan portfolios, the negative impact of the Dubai Bank acquisition, and a potential acquisition of Amlak,” HC Brokerage said. The recommendation on the shares was lowered to “neutral” from “overweight.”

Emirates NBD is one of the biggest creditors to Dubai World, one of the emirate’s three main state-owned holding companies that reached a deal in March to delay payments on $25 billion of loans. It is also a key lender to units of Dubai Holding LLC, one of whose investment companies is in talks with banks to reschedule at least $10 billion of liabilities. The bank in October took over the unprofitable Dubai Bank on orders from the emirate’s ruler.

Emirates NBD may need to set aside as much as 8 billion dirhams ($2.2 billion) by the end of 2013 to cover for bad loans, Goldman Sachs Group Inc said in a note on Dec. 7.

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