In April, First Abu Dhabi Bank PJSC pulled a $1 billion deal to acquire Egypt’s biggest investment bank. Just months later, it set its sights much higher.
(Bloomberg) —
In April, First Abu Dhabi Bank PJSC pulled a $1 billion deal to acquire Egypt’s biggest investment bank. Just months later, it set its sights much higher.
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 explored a bid for Standard Chartered Plc, but that it’s no longer considering an offer for the London-based lender.
A successful deal would have catapulted the regional champion into an emerging markets banking giant with more than $1 trillion in assets — about a third of the size of HSBC Holdings Plc — and would have been the biggest foreign takeover by a company in the Gulf region.
FAB’s exploration of Standard Chartered highlights the growing ambition of Middle East lenders and the wealthy oil-rich nations that back them. It also showcases Abu Dhabi’s aspirations to play a bigger role on the international stage and would have marked a turning point in Chief Executive Officer Hana Al Rostamani’s two-year reign.
“The fact that FAB have looked at merging with an international bank of the size of Standard Chartered demonstrates the ambition of Abu Dhabi Inc. in growing its financial services reach to new geographic territories,” said Mohammed Ali Yasin, an Abu Dhabi-based, independent capital markets advisor and investor. The interest also “emphasizes its thought process of looking to grow exponentially rather than gradually to leap in size over local and regional competition.”
Shares in FAB closed down 2.3% on Friday, giving the lender a $50.2 billion market value, roughly double that of Standard Chartered.
Deep Pockets
While any deal would have been complicated and ambitious given the difference in size and scale of the two banks, FAB has the backing of some of the world’s biggest investors, which it may have needed to turn to to get a deal done.
“A takeover would not have been possible with the current balance sheet,” said Shabbir Malik, a Dubai-based research analyst covering UAE and Saudi financials for EFG-Hermes. “They would have had to do a rights issue and key shareholders Mubadala and the Abu Dhabi ruling family would have had to participate.”
Abu Dhabi manages more than $1 trillion of sovereign wealth and is home to funds such as ADQ, the Abu Dhabi Investment Authority and Mubadala Investment Co. — which owns about half of FAB along with the emirate’s ruling Al Nahyan family — the world’s richest with a $300 billion fortune.
Buoyed with cash from last year’s commodity boom and spurred on by equally ambitious neighbors such as Qatar and Saudi Arabia, the United Arab Emirates — home to about 6% of the world’s proven oil reserves — is investing billions of dollars to diversify its economy away from crude.
Central to those ambitions is Sheikh Tahnoon bin Zayed Al Nahyan, a powerful royal family member and chairman of FAB. In recent years, Sheikh Tahnoon has taken on a more prominent role to spearhead the emirate’s political and economic agenda. He’s also head of Royal Group and ADQ, which oversees many key Abu Dhabi assets such as its ports and the local stock exchange.
Economic Growth
FAB was created when Abu Dhabi in 2016 combined two of its largest lenders — National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC. The new entity’s main purpose was to drive the UAE’s economic growth by lending to state entities and the domestic private sector. FGB had focused mainly on consumer banking and credit cards, while NBAD was bigger in wholesale banking and had expanded internationally under a CEO who’d spent two decades at Standard Chartered.
In recent years, FAB has built up a lucrative investment banking business and had amassed about $312 billion in assets at the end of September. That compares with Standard Chartered’s $864 billion. The lender also benefits from its close links to the Abu Dhabi government, with state and public-sector companies maintaining large accounts with the bank.
What Bloomberg Intelligence says:
First Abu Dhabi Bank’s interest in acquiring Standard Chartered — after over six months of assessment — despite being abandoned, underpins the desire of large local peers to expand their international footprints outside the Gulf region. The aim being to source liquidity, acquire expertise and diversify revenue.
Edmond Christou, senior BI analyst. Read more here
About three quarters of FAB’s revenue comes from the UAE although the bank has a presence in 19 countries outside of its home market, according to a November investor presentation. The lender, which employs about 7,000 staff, derives about 43% of its revenue from investment banking and last year worked on several high-profile transactions across the Gulf amid a flurry of dealmaking and initial public offerings.
FAB bought Bank Audi’s Egyptian unit in 2021, but hasn’t made any other significant acquisitions. Last year, it withdrew a billion-dollar bid for investment bank EFG-Hermes after facing lengthy regulatory delays in Egypt.
“The key takeaway is that FAB is quite keen on inorganic expansion and that it is willing to do it at scale if the right opportunity arises,” said Malik. “It would have been a challenging task for FAB’s management, first putting the financing together and then spending the bandwidth to face the operational challenges.”
Female CEO
George Washington University graduate Rostamani took over as group chief executive officer in January 2021, becoming one of the banking industry’s rare female CEOs not only regionally, but globally.
Since then, FAB has embarked on a broad management overhaul that’s led to the departures of several executives. Chief Financial Officer James Burdett recently said he’s retiring.
In FAB’s third-quarter results presentation in October, Rostamani said the challenging global backdrop “calls for caution” with the risk of recession in several economies.
“As we navigate these headwinds, we are nevertheless confident in the resilience of this region, and we remain very well placed to deliver market-leading shareholder returns while being an engine for the region’s economic growth and diversification,” she said.
International Growth
Regionally, FAB has long jockeyed with Qatar National Bank for the status of the Middle East’s biggest lender. Both banks have outlined their intentions to grow internationally, but such expansion has so far been confined to their domestic markets and regional countries such as Turkey and Egypt.
Gulf-based lenders are now starting to look further afield. Saudi National Bank became one of Credit Suisse Group AG’s biggest shareholders following an investment late last year.
European banks, like Standard Chartered, are long used to backing of wealthy Middle Eastern investors. Credit Suisse already counts Saudi conglomerate Olayan Group and the Qatar Investment Authority among some of its top investors. Some of the region’s funds also stepped in to invest billions in lenders including Barclays Plc, Credit Suisse and Citigroup Inc. during the 2008 financial crisis.
For FAB, its statement on Thursday means that it’s precluded from making an offer for Standard Chartered in the next six months, except under certain circumstances including a third party announcing a firm intention to make an offer.
Yasin says it makes sense for the Abu Dhabi lender to hold out for another ambitious deal.
“The market will benefit much more in future of such deals, if they took place, rather than looking at local mergers in UAE which won’t reap the growth benefits for FAB as much as international ones,” he said.
–With assistance from Farah Elbahrawy.
(Updates with Bloomberg Intelligence comment.)
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