Ahli United Bank (AUB), Bahrain's largest lender, is evaluating a sale or a merger with a strategic peer in a possible $5 billion deal, several bankers familiar with the situation said.
After previous sale attempts to a bank based in the Gulf Cooperation Council (GCC) area in 2010, AUB's shareholders, which include funds owned by the governments of Kuwait and Bahrain, have resumed plans to cash out, the bankers said.
Shares in AUB are up 14 percent since January and have risen by over a third in the past 12 months. Bankers said any deal would be driven by Kuwaiti shareholders' willingness to monetise their investments.
AUB declined to comment. State-backed shareholders in Kuwait and Bahrain were not available for comment.
Goldman Sachs, which had a role in the plans for a merger between AUB and a GCC peer in 2010, is expected to be involved if any deal happens. Goldman Sachs declined to comment.
AUB had originally been put up for sale in 2007 and attracted interest from both regional and international banks due to its broad reach across the region, another banker who took part in the negotiations, said.
Outside its home market of Bahrain, AUB has a presence in Kuwait, Egypt, Libya, Oman and Britain.
At the time, price was the main sticking point, the banker said.
This time round, United Arab Emirates banks are the most likely suitors if there is a sale because they are more comfortable operating in a region where there is political instability, a factor that can deter international investors, three bankers said.
With new investors on board, AUB would have the financial muscle to do other deals in the region, the bankers said, pointing to local subsidiaries of European banks such as Italy's Intesa Sanpaolo as potential targets.
Intesa acquired 80 percent of Bank of Alexandria in Egypt in 2006 and could consider selling it in return for cash and shares in a larger, more liquid Gulf bank, they said.
Bankers attending a recent Intesa presentation on its international growth plans said they expected the bank to put its Egyptian business under review while operations in Poland and Turkey were seen as core.
They said Intesa would be reluctant to sell Bank of Alexandria at a discount after paying $1.6 billion for 80 percent of the bank in 2006. This equates to about 5 times its book value, said one of the bankers, three times the sort of prices being paid for local banks in the aftermath of the financial crisis. Intesa cut its holding in Bank of Alexandria to 70.25 percent in 2009.
Exiting Egypt would be problematic given the limited appetite to invest in this part of the world, said one of the bankers. Instead, a combination with another GCC bank such as AUB would make strategic sense to widen its regional reach, the bankers said.
An Intesa Sanpaolo spokesperson said talk of a possible tie-up between Bank of Alexandria and AUB were just market rumours, and described them as groundless.
AUB has grown via acquisitions since it was created in May 2000 through the merger of United Bank of Kuwaitand Al-Ahli Commercial Bank. It has been in Egypt since it took control of local lender Delta International Bankin 2006.
AUB looked at BNP Paribas' Egyptian operations when the French bank decided to exit the country in the wake of the Arab Spring in 2012, CEO El-Labban said in an interview with Reuters in October last year. Dubai's Emirates NBD eventually bought the business for $500 million, equivalent to 1.4 times book value.
But for deals to happen in the region it often needs governments to play an active role in bringing together local institutions. For instance, Emirates Bank International and National Bank of Dubai were merged by the Dubai government in 2007 into Emirates NBD with the aim of creating a regional heavyweight.
The Central Bank of Bahrain, meanwhile, has been encouraging consolidation between smaller banks in the island kingdom to help strengthen those hit by the fallout from the financial crisis and the bursting of a local real estate bubble.