Dubai’s Arqaam Sees Abu Dhabi Commercial Bank Buying Rival UNB

  • Brokerage ‘pretty confident’ Abu Dhabi banks looked at merger
  • ADCB, UNB shareholding structure supportive of a combination

Abu Dhabi Commercial Bank PJSC will probably buy smaller rival Union National Bank PJSC in the next 12 to 18 months as the planned merger of Abu Dhabi’s two biggest banks boosts consolidation in the United Arab Emirates’ banking industry, Arqaam Capital Ltd. said.

Arqaam is “pretty confident” that ADCB and UNB looked at the possibility of a merger and “probably concluded that there are very strong merits for such a move,” Jaap Meijer, the brokerage’s head of equity research, said in an interview on Bloomberg TV on Monday. The shareholding structure of the two banks is supportive of a combination, he said.

Abu Dhabi in July decided to combine its two largest lenders, National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC, to create a regional powerhouse with $175 billion of assets. The merger was seen as a precursor to more deals in the U.A.E.’s financial services industry, where 49 lenders compete in a market of about 9 million people.

The oil-rich emirate is weighing a plan to merge ADCB and UNB as well as combine Abu Dhabi Islamic Bank PJSC with Al-Hilal Bank PJSC, people with knowledge of the matter said last week. Abu Dhabi is considering further deals after the NBAD-FGB merger is completed in the first quarter of 2017 and no final decision had been taken yet, according to the the people. ADCB, UNB and ADIB on Sunday said they had no knowledge of the merger plans. 

“We never read too much into the denial about mergers because they tend to happen after all," Meijer said. “These moves tend to be decided at the highest level in the U.A.E. so that doesn’t mean we won’t see a deal,” he said. Arqaam’s “central scenario remains” that ADCB will buy UNB in the next 12 to 18 months, he said.

The Abu Dhabi Investment Council, one of the emirate’s sovereign wealth funds, owns 58.1 percent of ADCB and 50 percent of UNB, according to data compiled by Bloomberg. It owns 7.6 percent of ADIB and all of Al Hilal Bank.

ADCB and UNB need to respond to the "very powerful" merger of NBAD and FGB, which will give them 25 percent market share, Meijer said. ADCB has a 10 market share and UNB 5 percent, so a combination will help them compete better, he said.

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