Emirates NBD paid just Dh10 to acquire Dubai Bank, the Islamic lender that was rescued by the Government last year.
As part of the deal, the nation's largest bank received Dh2.8bn (US$762.2 million) of funds from the Ministry of Finance and a blanket guarantee from the Dubai Government for losses resulting from the acquisition for the next seven years.
Details of the deal were revealed alongside a 62 per cent fall in net profit for the fourth quarter to Dh152m, which fell short of analysts' estimates. Earnings for the full year rose 6 per cent to Dh2.48bn.
The fourth-quarter profit suffered from a Dh1bn provisioning for bad debt, but Rick Pudner, the chief executive, said Emirates NBD was weathering turbulent market conditions well.
"During 2011 we have delivered a robust set of financial results, with net profits for the year up 6 per cent, despite an extremely challenging and volatile external environment and after adopting a significantly more conservative approach to de-risking the balance sheet," he said.
The bank reported Dh543m of fair value gains on the Dh2.8bn deposit from the federal Ministry of Finance, at an interest rate below market rates, during the next eight years.
Dubai Bank was rescued from collapse by the Government last May, and Emirates NBD was ordered to acquire it in October.
With the acquisition completed, Emirates NBD now has a clearer direction for the year ahead, said Surya Subramanian, the bank's chief financial officer.
"We're pleased to state that we had the support of the Dubai and Abu Dhabi governments in achieving this outcome," he said.
The transaction was conducted at "arm's-length" and reflected the "fair value" of the bank, Mr Subramanian added.
The bank's shares have fallen 19.7 per cent to Dh3 since the announcement that it would acquire Dubai Bank. The shares were unchanged in trading yesterday after the release of earnings.
The bank announced a 20 per cent cash dividend to shareholders.
Dubai Bank has now been consolidated with Emirates NBD, although how it sits alongside the bank's existing Islamic subsidiary, Emirates Islamic Bank, is being reviewed.
Emirates NBD has formed a "synergy committee" to explore the future of the two Islamic banks, Mr Pudner said, stopping short of saying whether they would eventually merge.
"We're still working through the potential synergies which … we see as very positive step to give us more scale in the Islamic banking arena," he said. Emirates NBD took a Dh93m cost for the consolidation of Dubai Bank in the fourth quarter.
Dubai Bank reported a Dh35m loss for the year.
But at a negligible valuation, the Dubai Bank acquisition was a good deal for Emirates NBD, said Raj Madha, a financial analyst at Rasmala Investment Bank.
"At the end of the day, customer relations and 22 branches are more positive than a small amount of short-term losses," he said.
The involvement of the federal Ministry of Finance, rather than Dubai's Department of Finance, was an important element of the funding deal, Mr Madha added.
"It's good to see that Abu Dhabi is taking an active interest in the health of the Dubai banking system," he said.
The acquisition of Dubai Bank grants Emirates NBD a 24.8 per cent stake in BankIslami Pakistan.
Emirates NBD wrote down by Dh750m its 47.5 per cent stake in Union Properties, a loss-making Dubai developer, citing the "underperformance of this asset during the year".
Last month, the bank agreed a Dh3.8bn debt deal, rescheduling payments and transferring stakes in several of Union's flagship property developments, including the Index Tower and Limestone House, home to the Ritz-Carlton DIFC.
Emirates NBD's lending rose by 5.3 per cent during the year to Dh216bn, after the addition of Dh8bn of Islamic loans from Dubai Bank.
The bank's loans to the Dubai Government swelled 10 per cent to Dh59.4bn during the year, accounting for about one third of the bank's total lending.
But deposits fell even with the addition of Dubai Bank's customers, with total deposits down 3.5 per cent to Dh193bn.
ghunter@thenational.ae
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A foster couple or family must:
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5.10pm: Continous
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Term life insurance: this is the cheapest and most-popular form of life cover. You pay a regular monthly premium for a pre-agreed period, typically anything between five and 25 years, or possibly longer. If you die within that time, the policy will pay a cash lump sum, which is typically tax-free even outside the UAE. If you die after the policy ends, you do not get anything in return. There is no cash-in value at any time. Once you stop paying premiums, cover stops.
Whole-of-life insurance: as its name suggests, this type of life cover is designed to run for the rest of your life. You pay regular monthly premiums and in return, get a guaranteed cash lump sum whenever you die. As a result, premiums are typically much higher than one term life insurance, although they do not usually increase with age. In some cases, you have to keep up premiums for as long as you live, although there may be a cut-off period, say, at age 80 but it can go as high as 95. There are penalties if you don’t last the course and you may get a lot less than you paid in.
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Income protection: this pays a replacement income if you fall ill and are unable to continue working. On the best policies, this will continue either until you recover, or reach retirement age. Unlike critical illness cover, policies will typically pay out for stress and musculoskeletal problems such as back trouble.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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UAE release: January 31
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