You can bank on it: FGB, NBAD boards unanimously approve $175b mega merger

Abu Dhabi - Combined market capitalisation approximately Dh107b; will be largest lender in Mena

The boards of directors of First Gulf Bank and National Bank of Abu Dhabi have voted unanimously to recommend to shareholders a merger of the two financial institutions to become the largest lender in Middle East and North Africa.
With Dh642 billion ($175 billion) of assets and a combined market capitalisation of approximately Dh106.9 billion, the new banking giant will have a 26 per cent share of outstanding loans. It will operate an international network of branches and offices spanning 19 countries.
The combined bank will retain NBAD's legal registrations and the brand name of National Bank of Abu Dhabi. On the effective date of the merger, FGB shares will be delisted from the Abu Dhabi Securities Exchange.
Its board will include four nominated directors of FGB and four nominated directors of NBAD. Shaikh Tahnoon bin Zayed Al Nahyan, who is currently Chairman of FGB, is the Chairman-designate.
Nasser Ahmed Alsowaidi, who is currently chairman of NBAD, is the vice-chairman-designate, while Abdulhamid M. Saeed, who is currently board member and managing director of FGB, is the chief executive officer-designate for the combined bank.
New board and management will assume the new roles when merger becomes effective; until then Andre Sayegh and Alex Thursby will continue to lead their banks independently as group CEOs of FGB and NBAD, respectively. Both entities will continue to operate independently until the merger becomes effective, which is expected in the first quarter of 2017.
The proposed transaction is a merger of equals and will be executed through a share swap, with FGB shareholders receiving 1.254 NBAD shares for each FGB share they hold. The exchange ratio implies a discount to FGB's shareholders of 3.9 per cent based on closing share prices on June 30, 2016, and a discount of 12.2 per cent to the three months' average pre-leak share price as on June 16, 2016.
Following the issue of the new NBAD shares, FGB shareholders will own approximately 52 per cent of the combined bank and NBAD shareholders will own approximately 48 per cent. The Government of Abu Dhabi and related entities will own approximately 37 per cent.
The new development was welcomed at the Abu Dhabi Securities Exchange where the Abu Dhabi Index grew 1.15 per cent to 4,549.42 points at the closing on Sunday.
NBAD shares gained 39 fils to close at Dh10.05 while FGB was up Dh3.25.
Atik Munshi, managing partner of Sharjah-based financial consultancy Horwath Mak, said: "The UAE economy is going through a phase of transition as the country and economy are maturing. In the current economic scenario synergy is becoming more and more important."
With the merger, he saw "a better liquidity position".
The market has already reacted positively on the news and business-wise, a better quality asset is expected from the merger, he said.
"Around 10 years back there was a merger between National Bank of Dubai and Emirates Bank International, and now the merger between NBAD and FGB, he said.
"I see a similarity between these two where one of the primary reasons was consolidation which in turn will brings about benefit of scale and thus savings," he said.
The boards of FGB and NBAD believe that the merger offers significant benefits to customers and investors. It results in the combination of two best-in-class consumer and wholesale businesses.
FGB has a market-leading consumer banking franchise, with one of the strongest credit card offerings in the UAE and a long-standing National Housing Loan programme run for the Abu Dhabi government. NBAD is a leader in the UAE in wholesale banking and capital markets advisory with strong international connectivity.
The combined bank will be well-diversified, with loans to the corporate sector representing 52 per cent of the total loan book, loans to the retail sector accounting for 26 per cent, and loans to the government sector representing 22 per cent. It will have presence in 19 countries, and be well-positioned in key financial centres including Singapore, Hong Kong, Geneva, London and Washington DC.
Economies of scale will help maintain a lean and efficiently run organisation. The merger is expected to deliver cost synergies of approximately Dh500 million annually.
Cost benefits are expected to be realised over three years, and the one-time integration costs are expected at approximately Dh600 million.
The combined bank will have the capital strength and strong core liquidity to pursue a range of high-growth opportunities. These include opportunities in the home market, supporting UAE corporates with international ambitions, leveraging an enhanced technology platform, more effectively using the expanded distribution capabilities and increasing wealth management cross-selling activity.
The combined bank will be a well-diversified, full-service financial institution, with strong offerings in consumer banking, wealth management, wholesale banking, SME banking and capital markets advisory.
While the UAE market is likely to remain the main focus, the bank's size, expertise and international reach will promote further development of an international business, particularly in wholesale banking, capital markets advisory, and other key segments, such as affluent banking.
Shaikh Tahnoon said: "The new, well-balanced bank will be an engine of UAE growth, driving further investment and economic diversification, and advancing the ambitions of entrepreneurs and the people they employ."
The combined bank will benefit from strong financial metrics. Its proforma tier one ratio is 15.7 per cent, well above the Central Bank of the UAE's prescribed minimum of eight per cent, and its proforma total capital ratio is 16.9 per cent.
The combined bank's funding profile will be diverse, with proforma wholesale funding accounting for 30 per cent of the total, customer deposits making up 69 per cent and other liabilities accounting for one per cent. Deposits are well-diversified, with corporate deposits accounting for 33 per cent, government and other public sector deposits 33 per cent and retail deposits 22 per cent.
Alsowaidi said the combined bank will have "the capital, expertise and international networks to be the preferred financial partner for anyone doing business along the West-East corridor. And, we will act as the primary link for businesses and governments that want to access regional and global capital markets".
Saeed added that the new bank will provide"excellent service to our customers and take advantage of the opportunities we see in our home market and internationally".
- haseeb@khaleejtimes.com