Dubai: Ending several months of speculation, Emirates NBD, the largest Gulf bank by assets, yesterday acquired 100 per cent of Dubai Bank, an Islamic bank fully owned by the Government of Dubai.

The acquisition was done on the orders of His Highness Shaikh Mohammad Bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai.

"The acquisition signals a new phase rich of opportunities for Emirates NBD and Dubai Bank. This step reflects the government's flexibility in dealing with the economic variables and crystallises the future vision designed at empowering local banking entities," Shaikh Ahmad Bin Saeed Al Maktoum, Chairman of Emirates NBD, said in a statement.

Addressing a conference call yesterday, Rick Pudner, Emirates NBD's chief executive, said the acquisition offers new opportunities to the country's largest banking group.

"Dubai Bank will be capitalised as and when required once the acquisition process is complete. For Emirates NBD as a whole we do not expect any adverse impact on our results as a result of this deal," said Pudner.

Managements of both banks and the statement from the Dubai Government's Media Office did not specify if there was any payment involved in the transaction.

 

No major impact

Commenting on the cost of the acquisition, Surya Subramanian, Chief Financial Officer of Emirates NBD, said: "We will know the cost of the acquisition only after completing the transaction in the fourth quarter.

"However, we do not expect any impact on non-performing loans or key performance ratios of Emirates NBD after this acquisition."

Last May the government of Dubai acquired 100 per cent of Dubai Bank, which was previously owned 30 per cent by Emaar Properties and 70 per cent by Dubai Holding.

At the end of 2009, Dubai Bank had total assets of Dh17.4 billion against total liabilities of Dh15.7 billion. It made a loss of Dh290.6 million, wiping out 15 per cent of its equity, driven by high loan losses, investment losses and a high cost/income ratio. Customer deposits stood at Dh14.9 billion at the end of 2009.

The bank has not yet reported its 2010 results. Rating agency Fitch said it expects a loss for 2010 as it expected full-year results for 2010 to be "negatively affected by its significant exposure to certain Dubai entities that are being restructured."

Last March Fitch downgraded the bank's rating to D/E from D and kept it on rating watch negative.

From last October there was on and off speculation about the possibility of Emirates NBD acquiring Dubai Bank and merging it with Emirates Islamic Bank, an Islamic bank belonging to the group.

Pudner said yesterday that Emirates NBD has no immediate plans of merging it with EIB.

"As it stands we see Dubai Bank remaining as a fully owned subsidiary with its own brand identity. Eventually we will look at enhancing synergies within the group," he said.

‘No major change in managements'

The acquisition of Dubai Bank by Emirates NBD is not linked to the recent management shake-up or any other top level changes in the banking sector, said Rick Pudner, CEO of Emirates NBD.

Addressing a conference call yesterday, Pudner said the discussions on the potential acquisition took place during the past few weeks and it is in no way linked to the recent management changes.

Pudner said he did not see any big changes in the managements of both banks until the acquisition process is complete in the fourth quarter.

Analysts said yesterday that eventually Amlak, the Islamic mortgage financing company, too will be acquired by Emirates NBD. ENBD might be forced to buy Amlak too, which has a weaker balance sheet," said Jaap Meijer, Head of Banks Research at HC Securities.

Commenting on the possibility of Emirates NBD taking over Amlak, Pudner said there has been no discussion on the subject so far. "We are unable to comment on Amlak as it is not linked to this deal," said Pudner.