Abu Dhabi’s NBAD, FGB in Talks to Form Top Middle East Bank

  • State-controlled banks confirm they’re studying a combination
  • Each bank has formed working group of senior managers for deal

National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC 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 on Sunday. 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 $170 billion and mark the first major banking merger in the United Arab Emirates since National Bank of Dubai and Emirates Bank International combined in 2007 to create Emirates NBD PJSC. 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 SAE.

“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 U.A.E.,” Chiradeep Ghosh, a banking analyst at Securities & Investment Co. in Bahrain, said by phone on Sunday. “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.”

Bank Advisers

Credit Suisse Group AG is advising state-controlled NBAD while UBS Group AG is working with FGB, people familiar with the matter said, asking not to be identified because the information is private. The banks declined to comment.

NBAD shares rose 4.4 percent on Monday after a 15 percent surge on Sunday, the maximum allowed in a day. FGB declined 2.7 percent after rising 11.5 percent on Sunday.

NBAD is the U.A.E.’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 U.A.E. is home to about 9 million people and has about 50 banks, including the local units of Citigroup Inc., HSBC Holdings Plc and Standard Chartered Plc. 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.

Balance Sheets

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 Plc, Citigroup Inc. and Sumitomo Mitsui.

NBAD, with a market value of about $11.3 billion at the end of Thursday, is 69 percent owned by sovereign wealth fund Abu Dhabi Investment Council. State-owned investment fund Mubadala Development is the biggest shareholder in FGB with a 7 percent stake. The bank’s market value is about $14.4 billion, 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 U.A.E., while NBAD is looking to expand outside the U.A.E."

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