Saudi’s Biggest Bank Abandons Plan to Create $200 Billion Lender
Biggest Saudi Bank Abandons Talks to Create Mega Lender
(Bloomberg) -- Saudi Arabia’s biggest lender scrapped plans to create a $200 billion bank, with differences over valuation potentially contributing to the collapse of year-long talks.
National Commercial Bank ended talks with smaller competitor Riyad Bank, according to regulatory filings, which didn’t provide further details. The two sides couldn’t agree on a valuation, according to a person with knowledge of the deal, who asked not to be identified because the matter is private.
As well as the obstacle of pricing, “given the stark performance divergence of the two lenders,” other possible reasons for the end of the talks could have been “regulatory concerns from an anti-competitive angle due to the market share of the merged entity and differences in views on how to execute the merger,” Citigroup Inc., which has a neutral rating on both banks, said in a note late Monday.
Saudi Arabia -- where almost 30 local and international lenders serve more than 30 million people -- is exploring potential mergers to boost its financial services industry after the combination of Saudi British Bank and Alawwal Bank. The kingdom’s sovereign wealth fund, which owns stakes in some of the biggest lenders, has been weighing which insititutions could be merged to increase scale and competition.
New Management
Riyad Bank in February appointed its Chief Financial Officer Tareq Abdul Rahman Al Sadhan to the role of chief executive officer. The bank’s shares have gained 23% this year, while National Commercial Bank has declined 2.4%. That compares with an increase of 4% for Saudi Arabia’s benchmark stock index.
“A lot has happened during this period,” said Joice Mathew, head of equity research at United Securities in Muscat, Oman. “Riyad under new management is growing at a much faster pace than its historical growth rate and also higher than its peers. Finding the correct valuation sweet spot might have been difficult.”
The Public Investment Fund, Saudi Arabia’s sovereign wealth fund, owns 44% of National Commercial Bank and about 22% of Riyad Bank.
What Bloomberg Intelligence Says:
The end of NCB and Riyad Bank merger talks isn’t a surprise to us, as Riyad has been resolving inefficiencies, moved to a new head office and is pursuing a strategy that’s delivering ROE higher than the industry since 1Q. Moreover, deal synergies likely wouldn’t have been quick and could have distracted NCB from its growth trajectory and weakened its risk profile.
Edmond Christou, BI financials analyst
Elsewhere in the region, Abu Dhabi completed the merger of three of its banks earlier this year to create the region’s fifth-biggest lender following the combination two of its biggest institutions. The United Arab Emirates has almost 50 banks catering to a population of less than 10 million.
--With assistance from Archana Narayanan and Sarah Algethami.
To contact the reporter on this story: Matthew Martin in Dubai at mmartin128@bloomberg.net
To contact the editors responsible for this story: Shaji Mathew at shajimathew@bloomberg.net, ;Stefania Bianchi at sbianchi10@bloomberg.net, Claudia Maedler
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