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Emirates NBD to take over troubled Dubai Bank

ENBD may have taken over bank for nil, says analyst. The Dubai Government rescued and took control of Dubai Bank in May; Sheikh Ahmed was named ENBD chairman in June

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October 11, 2011 10:18 by



Emirates NBD, the largest bank in the United Arab Emirates by assets, will take over struggling government-controlled Islamic lender Dubai Bank under orders from Dubai’s ruler.

Dubai’s government, which also holds a 55.6 percent stake in Emirates NBD, has been working to support state-linked institutions saddled with bad debts since the burst of the global asset bubble hit the Gulf emirate two years ago.

“(The) Dubai Government is keen to take the necessary steps to empower financial institutions to fully operate in a way that serves the national economy and consolidate the country’s position as a first class international financial hub,” the government’s media office said in a statement.

Emirates NBD executives told a conference call that the takeover was fully supported by Dubai’s government, paid at “fair value” and would not affect profits.

“Dubai Bank will be capitalised by ENBD to the extent considered necessary,” Chief Executive Rick Pudner told reporters, but did not offer specific financial details. “This will have negligible impact on the group’s overall capital ratio.”

Emirates NBD shares, which had risen 37 percent so far this year, gave up early gains and were down 1.6 percent at 1136 GMT on concern that it would inherit Dubai Bank’s problem assets.

Dubai Bank had been under scrutiny well before Europe’s latest wave of sovereign and banking debt troubles flared up again this year.

“There will be some concern about Dubai Bank’s liabilities, but we hope these have been handled by the Dubai government already,” said Mohammed Ali Yasin, chief investment officer at CAPM Investment in Abu Dhabi.

“I think longer term it is better for the reputation of the banking sector in,” Yasin said.

Dubai Bank and Emirates NBD, as well as other key financial and real estate institutions, are controlled through direct or indirect stakes held by Dubai Bank was owned by the private holding company of the ruler of Dubai and taken over by the government in May.

When the emirate took control of Dubai Bank it injected an unspecified amount of capital and said its takeover would protect depositors’ interests. Customers deposits stood at 14.9 billion UAE dirhams ($4 billion) at the end of 2009.

The bank may need up to 2 billion dirhams in fresh capital to have a “clean balance sheet”, Barclays Capital said.

Dubai Bank has not reported figures since 2009, when it had total assets of 17.4 billion dirhams against total liabilities of 15.7 billion dirhams. It made a 2009 loss of 290.6 million dirhams.

“We expect ENBD to acquire the bank for nil, as the government nationalized the bank and diluted its shareholders,” analyst Jaap Meijer of HC-Securities said in a research note.

ENBD has its own Islamic operations through its affiliate Emirates Islamic Bank (EIB).

FORCED CONSOLIDATIONS

Analysts have long been calling for fewer banks in UAE, where 23 local and 28 foreign lenders compete for the business of just 5 million people.

But strict ownership restrictions, stark valuation disparities and an unwillingness to lose control have stymied tie-ups other than those forced by the state.

“This comes in line with Dubai government efforts to enhance the banking sector in the emirate,” the government’s media office said in a statement. Dubai already has stakes in six commercial banks in the UAE, including Emirates NBD.

Emirates NBD itself was created in 2007 by the merger of two local banks ordered by Dubai’s ruler and had total assets of 300.3 billion dirhams and total liabilities of 266.3 billion dirhams as of March 31, according to Reuters data.

Dubai Bank was previously wholly owned by Dubai Banking Group, which itself is 70 percent-owned by Dubai Holding, the investment group owned by Dubai’s ruler, Sheikh Mohammed bin Rashid al-Maktoum.

The remaining 30 percent of Dubai Bank was owned by developer Emaar Properties , which took a writedown of 172 million dirhams on the investment in May.

Dubai’s ruler named his uncle and close adviser Sheikh Ahmed bin Saeed al-Maktoum as chairman of Emirates NBD in June. A week ago he said local banks in Dubai had enough liquidity to weather a global downturn.

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