Shares in Abu Dhabi banks soared early on Sunday on news
that National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB) were in merger
talks, while most other stock markets in the Gulf were firm.
NBAD and FGB confirmed in a brief statement on Sunday that
they were discussing a merger or combination of their businesses, in what would
create the largest bank by assets in the Middle East and Africa.
Reuters, citing sources aware of the matter, had reported on Thursday that the two banks were in preliminary talks on a merger.
In Sunday's statement, the banks said each lender had formed a working group made up of senior executive management to "review the commercial potential along with any legal and structural aspects of a merger or combination".
Once complete, the groups will provide their recommendations to their respective boards of directors.
"At this time, there is no certainty that discussions between NBAD and FGB will result in a merger or combination," the statement added.
Many analysts said it was too early to take positions in the
stocks before details were known. Some said a merger could benefit shareholders
of both banks. Arqaam Capital said FGB would benefit from a stronger wholesale
banking operation, while NBAD was underepresented in retail banking, but HSBC
predicted a pure merger would benefit only NBAD, while a merger through
acquisition would destroy shareholder value at both banks.
"A share swap scenario presents significant dilution
risks to shareholders of both banks," HSBC said.
Nevertheless, local retail investors cheered the idea of an
Abu Dhabi mega-bank, with NBAD shares jumping their 15 percent daily limit and
FGB gaining 7.7 percent.
Other Abu Dhabi bank shares also rose, partly on speculation
that they might be involved in further mergers and acquisitions activity as the
industry consolidated. Union National Bank climbed 4.5 percent. Abu Dhabi's
main stock index added 3.3 percent.
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