UNB shares climb for a second day on Abu Dhabi bank merger announcement

Shares of Union National Bank, one of three lenders in the potential big-ticket banking merger in the emirate, rose for the second day after announcing talks that could create the Arabian Gulf's fifth largest lender with $114 billion (Dh418bn) in assets.

UNB shares rose 10.84 per cent to Dh4.91 at 10.20am on the Abu Dhabi Securities Exchange, after ending almost 15 per cent higher at the close of trade on Tuesday. ADCB, which closed up almost 13 per cent yesterday, was little changed at Dh8 per share. The Abu Dhabi Securities Exchange general index climbed 0.2 per cent to 4,993.24.

The share surge on Tuesday added billions of dirhams to the market value of the two listed lenders. ADCB’s market capitalisation rose by Dh5bn while that of UNB climbed by Dh1.5bn. The third lender in the three-way merger, Al Hilal Bank, is not publicly traded.

ADCB, the second-largest lender in the emirate, is exploring the possibility of a merger with rival Union National Bank and Sharia-compliant lender Al Hilal Bank. The tie-up could create the UAE’s third-largest bank in terms of loans and assets. ADCB and UNB are majority-owned by the Abu Dhabi Government, which also controls 100 per cent of Al Hilal Bank through Abu Dhabi Investment Council, the state-owned company that has tied-up with Mubadala Investment Company.

ADCB confirmed “commencement of the exploratory talks regarding a potential merger” with UNB in a statement to ADX. Discussions are also taking place with Al Hilal Bank, it said. Talks are at a "preliminary stage" and may not result in a transaction, the lender said.

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Abu Dhabi has revamped its economy after a three-year oil slump and has merged state-backed companies, including two of its sovereign wealth funds, to create larger, more efficient entities amid tougher economic conditions. The potential tie-up of ADCB, UNB and Al Hilal Bank follows the merger of two of Abu Dhabi's biggest banks last year when National Bank of Abu Dhabi and First Gulf Bank combined their balance sheets to create First Abu Dhabi Bank, a $188bn banking powerhouse in the UAE.

“It is encouraging to see the UAE taking the lead in consolidation, and the announcement of a merger seems to make good business sense, in line with creating regional champions,” said Saeeda Jaffar, managing director in Dubai for Alvarez and Marsal. “It will offer a number of synergies as the banks currently seem to have complementary products, systems, technologies and customer segments. We will be watching these developments with interest, particularly the potential to bring an Islamic bank into the mix, although this is not entirely unchartered territory.”

Media reports suggested a decision to create another super lender in the UAE could be announced as soon as by the end of this month. Egyptian investment bank EFG-Hermes said common majority ownership by the Abu Dhabi Government in all three lenders could help pave the way for a deal.

“The combined entity would be the third-largest bank in the UAE on key balance sheet metrics – market share of 18 per cent in loans and 15 per cent in assets," EFG-Hermes said in a report on Wednesday. "If execution is successful, the merger should improve the banks’ competitive position, so that they can compete effectively against larger competitors, invest in technology and better cope with regulatory changes and credit cycles."