Trades in the two banks' shares were briefly suspended and transactions for 22 September cancelled as a rush of insider trading was prompted by leaks of the news, which will create an institution with total assets of about $6,600 million and control two-thirds of the banking sector. But as trading resumed, investors appeared to take the view that at book value - RO 100 million ($256 million) - Bank Muscat had overpaid for the troubled NBO. The deal, subject to the formality of regulatory and government approval, sees 85 per cent of NBO shares converted to Bank Muscat shares at a rate of 2.25 for one and the remaining 15 per cent converted into subordinated loan bonds carrying a nominal face value of RO 2.75 ($7.1).

'Investors seem to have taken a negative view of the deal,' says Matthew Eyre of Blakeney's Management. 'I am more optimistic. The merger will not only give Bank Muscat unrivalled pricing power but will also make NBO's bad debts more recoverable because Bank Muscat is effectively owned by the royal family.' At the end of June, NBO's delinquent loans stood at RO 258 million ($662 million) From now until the merger, due to take effect from 1 January 2005, NBO shares are expected to track those of Bank Muscat.

The shares of Oman International Bank (OIB)have also shed value since the merger was announced. 'OIB's stock has been dragged down, but again in my view this is unjustified and highlights the inefficiency of the Omani stock market,' says Eyre. 'Not only does OIB lose a competitor, but there is the possibility that the merged institution will fall foul of lending limits, allowing OIB to step into the breach.'

The other major market event in September was the listing of Al-Kamil Power Company (AKPC), following an oversubscribed initial public offering (IPO) in August. On the first day of trading, the stock leapt from RO 1 ($2.56) to RO 1.75 ($4.49). Such is the hunger from investors drowning in liquidity, any new issue can expect such interest. 'You could list your garden shed and find the offering attracting interest,' says one analyst. 'AKPC is not a particularly exciting stock.' The next IPO to hit the market is likely to be a 35 per cent offering, due in November, in the Barka power station project company. More interesting is the long-awaited IPO in Oman Telecommunications Company (Omantel). 'I think it will happen this time, although probably not before the end of the year,' says Eyre. 'Another stock to watch is Alliance Housing Bank- it is doing very well and could well be an acquisition target for banks looking to diversify.'

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