"Over the last 12 months we have seen a wave of consolidation announcements across the GCC banking sector, as the industry struggles to identify areas of growth following reduced economic activity due to lower oil prices," said Salman Bajwa, senior executive officer at Emirates NBD Asset Management.
If approved, the deal would see SABB acquire smaller peer Alawwal for 18.6 billion riyals ($4.96 billion) in what would be the first major banking merger in the kingdom in two decades.
The announcement on Wednesday implied a valuation premium of around 28 percent on the shares of Alawwal Bank. Shares in Alawwal jumped 10 percent to 13.92 riyals in its heaviest trade since April 2017, while SABB shares sank 4.5 percent as some investors bet the bank was overpaying.
"In most M&A exercises, the smaller parties tend to benefit from being paid premiums by the bigger partners or acquirers. That is certainly true in this case," Bajwa said.
Stocks in other Saudi banks were mixed. National Commercial Bank (NCB) initially fell as it went ex-dividend but then rebounded to gain 0.6 percent. The bank announced the resignation of its chief executive, Mohammed al-Ghamdi, who will be replaced on an acting basis by Faisal Omar al-Sakkaf.
Al-Sakkaf is expected to become chief executive permanently once formal procedures are completed, sources told Reuters.
Separately, NCB said on Wednesday that its shareholders had approved a hike in the bank's capital by 10 billion riyals via the issue of bonus shares.
In Dubai the index slipped 0.2 percent as Dubai Islamic Bank dropped 1 percent to 4.83 dirhams ($1.32). Trading of the bank’s rights issue began on Wednesday, allowing the purchase of the stock at 3.11 dirhams; the rights plunged 11.0 percent to 1.62 dirhams.
In Abu Dhabi, where the index edged down 0.1 percent, Dana Gas rose 1 percent after saying it received a dividend payment of $22.8 million from Pearl Petroleum Co, which produces natural gas in Iraqi Kurdistan.
ADNOC Distribution gained 1.2 percent after reporting a rise in first quarter net profit to 542.2 million dirhams, a 12.1 percent increase year on year, in line with some analysts’ expectations.
* The index shed 1 percent to 7,958 points.
* The index lost 0.2 percent to 2,932 points.
* The index slipped 0.1 percent to 4,467 points.
* The index gained 0.3 percent to 8,950 points.
* The index edged down 0.1 percent to 4,776 points.
* The index slipped 0.1 percent to 1,273 points.
* The index shed 0.7 percent to 4,654 points.
* The index was flat at 16,993 points. ($1 = 3.7502 riyals) ($1 = 3.6730 UAE dirham) (Editing by Raissa Kasolowsky)
© Reuters News 2018