Awards for Excellence 2019
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In the complex world of banking mergers, how does one ever know that the gain was worth the pain of merging? Rising revenues, lower costs, better market share, product range, or staff that work together regardless of their original affiliation?
Whatever weight you give to each of these metrics, First Abu Dhabi Bank (FAB) has delivered on all counts. The Emirati bank, born in 2017 through the combination of First Gulf Bank (FGB) and National Bank of Abu Dhabi (NBAD), has set the template for a successful bank merger in the Middle East, creating an institution greater than the sum of its parts.
“It proved to be correct, from a revenue angle, from a costumer perspective, from an expense angle as well,” says André Sayegh, FGB’s former chief executive and now FAB’s deputy chief executive. “The two banks as one became more efficient.”
It had been a decade since two financial institutions in the region had decided to join forces in this way. Few would have bet on NBAD and FGB ending the dry spell. Abu Dhabi Commercial Bank was widely viewed as a better fit for NBAD, due to their shared ownership by the Abu Dhabi Investment Council.
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André Sayegh |
But Sayegh tells Euromoney that NBAD and FGB work well together, with the former’s expertise in global markets complementing the latter’s skill in relationship management.
Like any merger, there was some disagreement on how to go about its implementation, he adds, but in the end all parties agreed on the course of action: “Maturity prevailed, at the level of management and at the level of the board.”
A battle of egos – one of the prime reasons merger talks break down – was avoided.
“On a personal level,” Sayegh says, “I was the chief executive of FGB. Now I’m a deputy chief executive of a larger bank, what’s wrong with that? In the long term, everyone benefits.
“It was not a matter of one bank being weak, one bank being strong – they were almost at the same level – but it was in the interest of everyone. Now there is no difference, to be honest, between an ex-FGB staff and an ex-NBAD staff. They’re all FAB.”
The merger took less than 18 months from signing to completion, with staff at both banks entirely focused on the swift delivery of the deal. Cost synergies were achieved ahead of schedule – 75% of those projected by 2020 were achieved by December 2018 – and the bank quickly started reaping the benefits of the merger.
Today, there is no more room for institutions that cannot invest in the future. They will never survive – André Sayegh
Under the leadership of chief executive Abdulhamid Saeed, formerly of FGB, the bank last year achieved net profit of Dh12 billion ($3.27 billion), up 10% on 2017, its first year of activity.
The cost-to-income ratio improved from 27.7% to 25.9%, while return on equity rose from 14.6% to 16.2%. It also achieved a 6% increase in its loan book last year, with a non-performing loan ratio of just 3.1%.
In other words, FAB has not only managed to merge the two banks’ operations, it is also thriving as a result of that combination.
It is true that FAB was helped to no small extent by the overlap between FGB’s and NBAD’s businesses. The two banks had similar cultures, both are based in Abu Dhabi and shared about 60% of their clients. Single jurisdiction mergers are certainly far simpler than cross-border ones.
Sayegh says management was fully on board with the merger, adding that M&A is not as successful when it is dictated by boards.
After peaking in 2016, FAB’s expenses have come down sharply. Staff numbers shrank, by about 15%, but Sayegh says that was far from the main explanation for the cost drop, pointing instead to the reduction in the branch network and the unification of banking systems as the main factors.
For example, both banks used Murex, a costly trading service; adopting a single subscription saved millions, says Sayegh.
It has long been clear that the Gulf’s banking sector was fractured, with dozens of smaller institutions struggling to compete for market share. FAB’s merger demonstrated that there is a way forward. The bank now controls more than a quarter of the Emirati banking market and competes on capital market deals internationally.
“Today, there is no more room for institutions that cannot invest in the future,” Sayegh argues, in defence of scaling up. “They will never survive.”
That view certainly seems to be making its way through boardrooms across the Middle East, as a flurry of M&A deals have been announced since FAB, including the merger of state investment companies Mubadala and Ipic; and the Saudi banks SABB and Alawwal.
First Abu Dhabi Bank is now Abu Dhabi’s national banking champion and on many metrics stands above regional competitors Emirates NBD and Qatar National Bank. All it took to achieve that outcome was a steadfast belief in the benefits of joining forces.
