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This Is How a Merged HSBC, RBS Saudi Venture Would Rival Peers

  • Combined bank would be GCC’s 7th-largest bank by market value
  • SABB and Alawwal trade at a lower valuation than peers

The potential merger of Saudi British Bank and Alawwal Bank in Saudi Arabia would create the seventh-largest bank by market value in the six-nation Gulf Cooperation Council.

Alawwal Bank, which is 40 percent owned by Royal Bank of Scotland Group Plc, plans to start initial talks with SABB, according to a statement on Saudi stock exchange website Tuesday. Both lenders are based in Riyadh, with HSBC Holding Plc owning 40 percent of SABB. If a deal is completed, it would create a bank with a market value of $12 billion, just behind Emirates NBD PJSC’s $12.3 billion value, according to data compiled by Bloomberg.

The combination would create the kingdom’s third-largest bank by assets. Any deal would likely happen at the banks’ current market price with an exchange ratio of 1 SABB share for 2.1 Alawwal shares, Arqaam Capital Ltd. Managing Director Jaap Meijer said in a note.

Improved funding costs as a result of the potential merger would help boost the combined bank’s return on equity by one percentage point, according to Arqaam.

Alawwal Bank shares jumped as much as 9.7 percent on Wednesday, while Saudi British Bank added 4.1 percent as of 2:50 p.m. in Riyadh. Alawwal trades at 1.01 times book value, near Saudi British Bank’s price-to-book ratio of 1.1, according to data compiled by Bloomberg. This compares with 1.3 times for Saudi Arabia’s banking index.

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