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| 05 September, 2018

Bank merger: Abu Dhabi deal could be “more positive for UNB”: analyst

ADCB shares drop as it has more to lose from merger, unless the valuation is favourable for the bank- Analyst

Abu Dhabi Commercial Bank Head Office

Abu Dhabi Commercial Bank Head Office

ADCB/Handout via Thomson Reuters Zawya

Shares in Abu Dhabi Commercial Bank (ADCB) fell on Wednesday, while Union National Bank (UNB) rose, as traders speculated on how the proposed merger talks could play out for the different lenders, analysts said.

ADCB shares dropped 4.620 percent to 7.63 dirhams a share on Wednesday while UNB rose sharply for the second session in a row, adding 11.74 percent to 4.95 dirhams a share, and was the best performer on the Abu Dhabi index, which closed 1.12 percent lower on the day.

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The movement comes following ADCB’s announcement late on Monday that it had started “exploratory talks regarding a potential merger with Union National Bank”. It also added that “similar and separate discussions have also commenced with the shareholders of Al Hilal Bank.” (click here for full story)

While ADCB rose 12.8 percent and UNB surged 14.8 percent on Tuesday following the announcement, the sentiment on Wednesday among some analysts was that the deal will be more beneficial for UNB.

“UNB was trading at suppressed valuation before the announcement. We believe the deal would lead to value unlocking and would thus be more positive for UNB,” Chiro Ghosh, research manager at SICO, told Zawya.

“ADCB would be absorbing two banks with inferior asset quality and profitability. Unless the valuation is favorable towards ADBC, the bank has more to lose. The initial rally (on Tuesday) was driven on the expectation of synergies and more business from the larger equity book,” he added.

“We believe factors such as asset quality, asset profitability and intangible assets, would be considered before arriving at the final valuation of the banks. At this stage, no one knows what will be the final swap ratio, so it is a shot in the dark, as to which bank would benefit more from the deal.”

"Our preliminary estimate suggests the deal to take place at 0.6 share of ADCB for each share of UNB."

Shares of UNB appear to be overbought, according to the Relative Strength Index (RSI 14). The index is a measurement between zero and 100. Traditionally the RSI is considered overbought when above 70 and oversold when below 30.

Data from Thomson Reuters’ Eikon shows that UNB has an RSI of 84.429.

Elsewhere in the region, Dubai’s index dropped 0.66 percent, Kuwait’s index added 0.21 percent, Bahrain’s index dropped 0.24 percent, while Qatar’s index added 0.1 percent and Oman’s index edged up 0.01 percent.

At 2:14 pm GST, Egypt’s index was trading 1.01 percent lower and Saudi Arabia’s index dropped 1.45 percent.

(Reporting by Gerard Aoun; Editing by Shane McGinley)

(gerard.aoun@thomsonreuters.com)

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© ZAWYA 2018