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Thursday, March 30, 2023

Abu Dhabi’s StanChart Interest showcases global ambitions

Abu Dhabi’s StanChart Interest showcases global ambitions

(Bloomberg) – In April, First Abu Dhabi bank PJSC withdrew from a $1 billion deal to buy Egypt’s largest investment bank. Just a few months later, it’s aiming even higher.

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FAB, which has grown into the Middle East’s largest bank by assets since it was created through a merger about six years ago, said on Thursday it was studying a bid for Standard Chartered but was no longer considering an offer for the London-based lender.

If the deal goes through, the regional champion would catapult the regional champion into an emerging-market banking giant with more than $1 trillion in assets — roughly one-third the size of HSBC Holdings plc — and the largest overseas capital for a Gulf company. acquisition.

FAB’s quest for Standard Chartered highlights the growing ambitions of Middle Eastern banks and the rich oil states that back them. It also demonstrates Abu Dhabi’s desire to play a bigger role on the international stage and marks a turning point in the two-year tenure of chief executive Hana Al Rostamani.

“FAB’s consideration of merging with an international bank of Standard Chartered’s size demonstrates the ambitions of the Abu Dhabi company to expand its financial services into new geographic regions,” said Abu Dhabi-based Mohammad Ali Yassin, independent Capital market advisors and investors. This interest also “underscores its thought process of seeking to grow exponentially rather than incrementally beyond the scale of local and regional competition.”

FAB shares closed down 2.3 percent on Friday, with a market capitalization of $50.2 billion, about twice that of Standard Chartered.

rich and powerful

Any deal would be complex and ambitious given the difference in size and scale of the two banks, but FAB has the backing of some of the world’s largest investors, which it may need to turn to to get the deal done.

“Acquisitions are out of the question with the current balance sheet,” said Shabbir Malik, analyst for UAE and Saudi financial research at EFG-Hermes in Dubai. “They’re going to have to do a rights issue, and the major shareholders, Mubadala and the ruling family of Abu Dhabi, will have to get involved.”

Abu Dhabi, which manages more than $1 trillion in sovereign wealth, is home to funds including ADQ, Abu Dhabi Investment Authority and Mubadala Investment Co. – which owns about Half of the shares – $300 billion fortune for the world’s richest.

Spurred on by cash from last year’s commodities boom and by equally ambitious neighbors such as Qatar and Saudi Arabia, the United Arab Emirates — which holds about 6% of the world’s proven oil reserves — is investing billions of dollars to Diversify your economy away from crude oil.

At the heart of these ambitions is Sheikh Tahnoon bin Zayed Al Nahyan, a powerful royal and FAB chairman. In recent years, Sheikh Tahnoon has taken a more prominent role in leading the emirate’s political and economic agenda. He is also head of the Royal Group and ADQ, which oversees many of Abu Dhabi’s key assets, such as the port and the local stock exchange.

Economic Growth

FAB was created when Abu Dhabi merged its two largest banks, Abu Dhabi National Bank PJSC and First Gulf Bank PJSC, in 2016. The main purpose of the new entity is to drive economic growth in the UAE by providing loans to state-owned entities and the domestic private sector. FGB is primarily focused on consumer banking and credit cards, while NBAD is bigger in wholesale banking and has expanded internationally under the leadership of a chief executive who spent 20 years at Standard Chartered.

In recent years, FAB has built a lucrative investment banking business that had amassed about $312 billion in assets as of the end of September. That compares with Standard Chartered’s $864 billion. The lender also benefits from close links with the Abu Dhabi government, with state-owned and public sector companies holding large accounts at the bank.

About three-quarters of FAB’s revenue comes from the UAE, according to an investor presentation in November, although the bank operates in 19 countries outside its home market. The bank, which employs about 7,000 people and generates about 43 percent of its revenue from investment banking, was involved in several high-profile deals in the Gulf region last year in a string of dealmaking and initial public offerings.

FAB acquired the Egyptian arm of Audi Bank in 2021 but has not yet made any other major acquisitions. Last year, it withdrew its billion-dollar takeover of investment bank EFG-Hermes after Egypt faced lengthy regulatory delays.

“The key point is that FAB is very keen on expanding inorganically, and is willing to do it at scale if the right opportunity presents itself,” Malik said. “It will be a challenging task for FAB’s management to first raise funds and then spend bandwidth to meet operational challenges.”

female president

George Washington University graduate Rostamani takes over as Group CEO in January 2021, becoming one of the few female CEOs in the banking industry both regionally and globally.

Since then, FAB has embarked on a wide-ranging management overhaul that has resulted in the departure of several top executives. Chief Financial Officer James Burdett recently said he was retiring.

In FAB’s third-quarter results report in October, Rostamani said the challenging global backdrop “needs caution” with recession risks in several economies.

“As we navigate these headwinds, we remain confident in the region’s resilience and our ability to deliver market-leading shareholder returns while being an engine of economic growth and diversification in the region,” she said.

international growth

Regionally, FAB has long competed 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 their domestic market and regional countries such as Turkey and Egypt.

Banks in the Bay Area are now looking further afield. The National Bank of Saudi Arabia became one of Credit Suisse’s largest shareholders following an investment late last year.

European banks like Standard Chartered have long been used to backing wealthy Middle Eastern investors. Credit Suisse already counts Saudi conglomerate Olayan Group and Qatar Investment Authority among its major investors. Funds in the region also stepped in during the 2008 financial crisis, investing billions of dollars in banks including Barclays, Credit Suisse and Citigroup.

For FAB, its announcement on Thursday meant it was excluded from making an offer to Standard Chartered for the next six months, unless in certain circumstances, including a third party announcing its intention to make an offer.

Yassin said it made sense for Abu Dhabi Bank to stick with another ambitious deal.

“The market would benefit more from such deals if they happen, rather than focusing on local mergers in the UAE, which would not provide FAB with the same growth benefits as international mergers,” he said.

—With the assistance of Farah Elbahrawy.

Most reads come from Bloomberg Businessweek

©2023 Bloomberg Intelligence

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