Storm clouds over EFG-Hermes parted yesterday as the Cairo investment bank pulled off a major acquisition that gives it a foothold - again - in the prosperous Lebanese banking sector. The largest publicly traded investment bank in the region agreed to pay US$542 million for a 65 per cent stake in Beirut's Credit Libanais. It also retained the right to buy an additional 25 per cent over the next two years on the same terms. The company is paying cash and will not require outside funding. Before the announcement was made at midday yesterday, the outlook for EFG-Hermes was gloomy. Earlier in the week, it posted a 39 per cent dip in second-quarter profitbecause of sagging trading volumes on regional stock exchanges and falling commission income.
EFG-Hermes is 18.5 per cent owned by Dubai Financial Group, a division of the government-owned conglomerate Dubai Holding, and has offices in the UAE, Saudi Arabia and Kuwait. But the equity markets in those countries are flagging badly. Adding Credit Libanais provides important diversification into consumer and commercial banking. Credit Libanaishas deposits of $5 billion and a market share of about 5 per cent in Lebanon, according to EFG-Hermes. Credit Libanais had net income of $36m and almost $1.47bn of net loans as of June 30.
For EFG-Hermes, the acquisition appears to be an effective deployment of its cash, as well as a return to the Lebanese market. Previously, EFG-Hermes owned a stake in Bank Audi for less than four years. It sold that holding this year for a $260m profit. Lebanese banks have not had to make large provisions and Lebanese expatriates have sent home a steady flow of deposits. Still, the government has significant debt, and the uncertain political situation is a constant risk.
