Dubai: The merger between the National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB), which was legally completed on April 1, will have a one-time integration cost of around Dh1.1 billion. The figure is a revision from the earlier-stated Dh600 million.
An investor presentation posted by First Abu Dhabi Bank (the new name of the merged entity) said that the integration costs exclude “strategic investments in key enablers” estimated at nearly Dh350 million over the next three years.
One-time integration costs will be fully absorbed by 2019, and include brand identity roll-out, professional fees and training, relocation expenses, staff severance, and IT migration and write-offs, the presentation said.
Analysts had earlier said that the cost implications of the merger are expected to squeeze the bank’s finances, though just for the short term.
The integration costs represent 110 per cent of cost synergies, comparing favourably with the benchmark range of 120-140 per cent, the bank said.
First Abu Dhabi Bank also said the cost synergies of the merger were revised higher to around Dh1 billion, up from the preliminary assessment of Dh500 million. It added that merger benefits are expected from 2018 onwards.
The cost synergies will be realised over three years, and will be primarily driven by network and staff reductions, consolidation of common business functions, systems integration, and premises reduction.
Speculations have been afloat in the stock market about possible staff reductions of around 2,000-2,500 employees, though neither NBAD nor FGB have ever confirmed those figures.
The presentation also said that funding cost optimisation alone represents a revenue synergy opportunity estimated at around Dh400 million.
As for financial outlook, the newly-merged entity is expected to see loan growth in the mid single digits and core revenue growth in the low single digits.
The bank said that a “strategic direction has been set and we are on track to deliver a successful integration and meet our financial targets.”
Following a conference call held by First Abu Dhabi Bank on Monday to discuss the figures, the bank’s share prices jumped 4.8 per cent, and shares were the most actively traded on the Abu Dhabi bourse. The bank’s shares accounted for 46 per cent of the total traded value, with share prices ending the day on Tuesday at Dh10.9.
The rise pushed the Abu Dhabi Securities Exchange (ADX) general index up, ending the day 1.84 per cent higher.
The conference call and the presentation come just a day after NBAD and FGB announced the new name of the merged entity will be First Abu Dhabi Bank, though shares will trade under the NBAD ticker symbol. The bank is the UAE’s largest one and one of the largest in the Middle East and North Africa, with Dh670 billion in assets.
First Abu Dhabi Bank has Dh10.9 billion, market capitalisation of around Dh111 billion, and shareholders’ equity worth Dh98 billion.
Fitch Ratings, Moody’s, and Standard & Poor’s, the ratings agencies, affirmed the ratings of National Bank of Abu Dhabi (now named First Abu Dhabi Bank) at AA-, Aa3, and AA- respectively.
The affirmation comes after the bank merged with First Gulf Bank (FGB) on April 1. Standard & Poor’s has also removed ‘CreditWatch Negative’ and assigned a stable outlook to its rating. All credit ratings on FGB were withdrawn following the merger, which saw FGB get delisted from the Abu Dhabi bourse.