Abu Dhabi’s FAB and ADIB deny merger talks

Tie-up between emirate’s largest lenders would have created the biggest bank in Mena

First Abu Dhabi Bank, the UAE's biggest bank by assests - stability in oil price has helped lift the growth prospects of lenders in the wider GGC market. Chris Whiteoak / The National

First Abu Dhabi Bank, the UAE’s largest lender by assets, and Abu Dhabi Islamic Bank both denied reports they were in talks to merge, in a move that would have created the largest lender in the Arab world.

“While the bank does not comment on speculation, FAB strongly denies the report issued by Bloomberg on the potential merger between FAB and ADIB,” a spokesman for FAB said in a statement to media on Thursday morning.

“FAB currently has not entered discussions with ADIB to pursue any merger activity. Following the recent completion of our integration process, the bank is fully focused on unlocking its full potential and maximising shareholder value in 2019.”

In a statement to the Abu Dhabi Securities Exchange where its shares are traded ADIB said reports of a merger "are not true and the bank is not looking at any mergers with any bank."

Citing unnamed sources, Bloomberg reported on Wednesday that Abu Dhabi is considering merging the two state-backed banks, but planned to wait for a planned tie-up between three other UAE lenders – Abu Dhabi Commercial Bank, Union National Bank and Al Hilal Bank – to close before starting new merger talks.

A merger between FAB and ADIB would have created a lender with more than $236 billion in assets, eclipsing all banks in the Arabian Gulf and wider region.

FAB is the bank formed by the merger between National Bank of Abu Dhabi and First Gulf Bank in 2017. The lender reported an annual 11 per cent increase in assets last year which reached Dh744.1bn at the end of 2018.

ADIB, the emirate’s biggest Sharia-compliant lender, reported a 1.6 per cent annual increase in its assets last year which climbed to Dh123.3bn.

Despite both banks' denials, Jaap Meijer, head of research at UAE investment bank Arqaam Capital, told The National the likelihood of a deal was "still extremely high".

“There are a lot of synergies that could be reaped on the cost side,” he said. “ADIB has a strong retail operation but rather a high cost base, so a merger would make sense.”

In a paper on Thursday morning, Arqaam Capital said FAB may swap one of its stock in return for 2.75 shares of ADIB as a base case scenario for a potential merger. Such a “high premium” is likely given the shareholder structure, the paper said

“We expect FAB to use its lofty valuation for inorganic growth,” analysts Mr Meijer and Janany Vamadeva wrote in the report.

“We still assign a very high likelihood of completion on strong merit, cost rationalisation…for ADIB, growth in Islamic finance, [earnings per share] increase for FAB and attractive exit opportunity for core shareholders of ADIB.”

FAB had said it was open to inorganic growth in the domestic market to enhance shareholder value creation at its investor day on March 6, they said.

There is significant scope for branch rationalisation given FAB’s network of 79 and ADIB’s 80 branches, the report added, and the combined entity should be able to come up with a strong digital platform.

Meanwhile, FAB will benefit from ADIB’s retail book, which makes up 62.5 per cent of its total loans versus 18 per cent for FAB, while providing an attractive entrance into Islamic retail banking.

There would likely be limited implications for stock market indices should a merger go ahead, Arqaam Capital added.