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Abu Dhabi seeks $1 trillion global banking deal

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(Bloomberg) — The oil-rich emirate of Abu Dhabi has made a string of ambitious acquisitions in the international banking sector over the past year in an attempt to become a global financial powerhouse. So far no success.

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Abu Dhabi wealth fund ADQ held preliminary talks to buy boutique investment bank Lazard Ltd. earlier this year, according to people familiar with the matter. Discussions quickly fell apart amid disagreements over the future independence of the 175-year-old Wall Street firm, people familiar with the matter said. Anonymity was requested as the discussions are private.

Around the same time, Abu Dhabi’s first bank, PJSC, was said to be considering a bid for Britain’s Standard Chartered Plc for as much as $35bn. It had tried to buy Egypt’s largest investment bank in 2022. But none of those deals materialized.

The Royal Group, chaired by Sheikh Tahnoon bin Zayed Al Nahyan, the United Arab Emirates’ national security adviser, had considered Acquired the UK division of Silicon Valley Bank following its collapse. The unit was eventually purchased by HSBC Holdings plc for £1 ($1.30).

Abu Dhabi has managed to secure some niche deals in the financial sector, but there is little doubt that it may stop looking for big deals. The emirate manages about $1.5 trillion in sovereign wealth and is home to funds such as Abu Dhabi Investment Authority and Mubadala Investment Company. The expansion of the emirate of Abu Dhabi was driven by the ambitions of the ruling Al Nahyan family, especially Sheikh Tanu. The emirate’s global reach is growing and it needs to find new avenues of growth for its banking sector.

Karim Souaid, managing partner of Gulf-based private investment firm Growthgate Capital, said: “Despite the large balance sheets of Abu Dhabi’s largest banks, their commercial banking sector is largely Still local.” “The industry is poised to go global to follow diversification policies, reclaim petrodollars and seize new opportunities.”

The UAE government media office referred questions to the Abu Dhabi media office, which did not respond to a request for comment.

limited expansion

The UAE has a relatively small population of just over 9 million people. Many regional and foreign banks already operate there. With limited expansion opportunities in the domestic market, some financial institutions are looking overseas.

FAB – Abu Dhabi Bank – has long been competing with Qatar National Bank for the position of the largest bank in the Middle East. Both banks have outlined their intentions to grow internationally, but so far this expansion has been limited to regional countries such as Turkey and Egypt.

A series of takeover attempts in Abu Dhabi offers a window into the massive ambitions of the Middle East’s wealthiest institutions to play a bigger role in global finance, and the difficulties they face in achieving them.

FAB acquired the Egyptian subsidiary of Audi Bank in 2021. A year later, FAB withdrew its $1.2 billion bid for Egyptian investment bank EFG-Hermes as it faced lengthy regulatory delays, according to Bloomberg. In the case of Standard Chartered, completing the deal was complex and ambitious, given the hurdles and the difference in size of the two banks. Regulatory approval and compliance are among the hurdles to a successful acquisition, people familiar with the matter said earlier this year.

Not all discussions were unsuccessful. In May, Mubadala teamed up with the management team of American Asset Management to acquire a majority stake in Fortress Investment Group, a deal that valued Fortress at more than $2 billion.

Abu Dhabi’s growing ambitions come as banks around the world have failed. Flush with cash following the recent surge in oil prices, the region remains home to a handful of financial institutions capable of raising large amounts of cash to complete rescue packages or mega-deals. In 2008, the richest monarchy in the Gulf also stepped in to buy stakes in Western banks such as Citigroup.

Earlier this year, ADQ and International Holding Co. – both chaired by Sheikh Tahnoon – formed a new investment group with the backing of US private equity firm General Atlantic. The entity is seeking to become the largest asset manager in the region. A deal to buy Lazard, which manages about $235 billion in assets, would significantly bolster ADQ’s capabilities, according to a person familiar with ADQ’s investment strategy. A representative for ADQ declined to comment.

For Standard Chartered, which has a balance sheet twice the size, a deal would catapult FAB into an emerging-market banking giant with assets of more than $1 trillion — about a third the size of HSBC. At the time, FAB confirmed it had considered a bid but said it was no longer considering offers.

EFG Hermes bank analyst Shabbir Malik expects FAB to continue looking for deals.

“For FAB to continue to grow at the same rate it has experienced in recent years, it needs to look to expand beyond the UAE,” he said. “The short-term and near-term outlook for their stock and financial performance will depend on the quality of their acquisitions.”

— with the assistance of Abir Abu Omar.

Most reads are from Bloomberg Businessweek

©2023 Bloomberg

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