Business Close-up: Emirates NBD

04 April 2008
The Dubai bank is looking beyond the UAE following the integration of its two founding institutions.

Emirates NBD is the largest bank by assets in the region. It listed on the Dubai Financial Market in October 2007, following the merger of Dubai’s two leading institutions: Emirates Bank International (EBI) and National Bank of Dubai (NBD). In mid-March, its shares were trading at AED14 ($3.80), a price almost 50 per cent above its listing price of AED9.30. Key management posts have been filled, product lines and prices have been aligned and the bank is working towards integrating its technical platforms, to be completed by 2009. It is also devising a new, single brand.

The local merger was unusual in a region where banking institutions have a healthy appetite for cross-border acquisitions. Now, Emirates NBD itself is on the hunt for regional financial institutions to buy.


The merger, formerly approved by shareholders in September 2007, was effectively a take-over of NBD by EBI, the shareholders of the latter constituting two-thirds of the publicly held shares in the new entity. The subordination of NBD to EBI is reflected in the management structure. Former EBI chief executive officer (CEO) Rick Pudner became CEO of Emirates NBD, bringing with him EBI’s chief financial officer (CFO) Sanjay Uppal as the new entity’s CFO. Its chairman is former EBI chairman Ahmed Humaid al-Tayer.

Company snapshot

Date established: October 2007

Main business sectors: Commercial banking

Market capitalisation: $16.7bn

Assets: AED254bn ($68bn) in December 2007

Share ownership: 56 per cent Dubai government, 44 per cent public (5 per cent foreign ownership permitted)

Chief executive officer: Rick Pudner

The rationale for the merger is clear in a market with a small population and a proliferation of UAE banking institutions with small asset bases. In an era of increasing inter-national penetration, the merger created an institution that is able to compete globally and withstand the turmoil on the international banking scene.

“Consolidation works for the institution and shareholders, who then own something with critical mass that could take the shocks that have hit some international banks,” says Uppal. “Over the long term, a $5-10bn balance sheet is not enough to sustain major shocks.”


The bank’s first consolidated earnings for 2007 show a net profit of AED4bn ($1.06bn), up 35 per cent on the previous year. The growth was driven by both wholesale and retail banking performance. The bank had minimal exposure to the sub-prime mortgage crisis that has rocked many international institutions. Uppal estimates that, at the most, the bank has $15m in indirect exposure to the crisis.

Operating costs for 2007, however, soared by 51 per cent, reflecting the ongoing cost of integrating the two institutions. About AED200m was set aside to cover the costs of integrating the two institutions over three years, and the bank says it is on budget.

“Most of our costs are due to our investment in infrastructure - for example, our branch network and ATMs [automatic teller machines],” says Pudner. “We are combining ATMs and cross-selling to clients. A cost increase of 51 per cent looks high, but it is an investment in the future. The benefits of the merger will be realised in three years’ time.”

In addition to integrating personnel and equipment, the merger involved consolidating the two local institutions’ business cultures and devising new practices that fit a regional institution. “Sometimes we adopted EBI practices and other times NBD ones,” says Uppal. “But as a consolidated business, some things we need to look at in a different way. A business culture for Emirates NBD going forward has started to develop.”

The bank has no plans to issue more shares or launch global depository receipts, but it is pursuing a credit rating. This suggests it may be planning an approach to the debt markets.


The bank is expanding its branch network in Abu Dhabi and Sharjah and is planning to upgrade its office in Singapore. It is pushing for growth across its business lines, focusing on retail banking, its wealth management offering and its corporate business.

The GCC and Saudi Arabia are its target markets. “In terms of geographic expansion, we are looking at new countries, especially Saudi Arabia, where we have a branch and are looking to expand in retail and corporate banking,” says Pudner. “We are focusing on key markets regarding trade flows with Asia.”

In April last year, EBI bought Egyptian card processing business National Processing Company. The bank is also poised to acquire other Middle East institutions. “Acquisitions are not easy to plan but we wish to achieve one in the near future,” says Pudner. “The GCC is a priority but there are other areas as well. We are looking at the rest of the region. There are also opportunities in Islamic banking and in Asia.”

One of the key challenges for the merged institution is defining itself in the marketplace both at home and abroad.

“The brand is difficult to integrate,” says Uppal. “Brand research is going on. We want to have one face and one marketing budget. At times, the two brands are competing.

MEED Assessment

The merger has created a local bank with regional scale that ranks alongside its Saudi peers. Its consolidated balance sheet gives the bank the foundation from which a global institution could emerge. However, it has yet to reveal a single corporate identity, which is necessary to pursue its international plans, by creating a single face to present to the global banking community. At home, the launch of a new Emirates NBD brand will affirm its position as a leading bank in the UAE. Currently, clients still bank with either EBI or NBD.

Emirates NBD’s main local rival, in terms of size, will remain National Bank of Abu Dhabi, which had AED139bn in assets in December. But the merger has had little impact on the banking sector in the UAE as a whole. No banks have followed the Emirates NBD example, disappointing the UAE government, which had hoped that the merger would provide a blueprint for further bank consolidation.

Q&A: Sanjay Uppal, chief financial officer

How did the merger of Emirates Bank International (EBI) and National Bank of Dubai (NBD) come to pass?

[Ruler of Dubai and UAE Prime Minister] Sheikh Mohammed bin Rashid al-Maktoum got involved. He bought the shareholders together. And there were common shareholders on either side, or ones that knew each other.

How was it initiated?

We had limited experience on both sides of the organisation of conducting this type of transaction. We agreed to some informal and formal terms, including carrying out due diligence. We appointed a team to do that. We appointed lawyers - Linklaters for EBI and Allen & Overy for NBD - and a joint lead adviser, Goldman Sachs, to advise the joint steering committee.

Each side appointed fairness opinion advisers (FOAs) - Lehman Brothers for EBI and Morgan Stanley for NBD. Goldman Sachs came up with a value and the FOAs made sure it was in the interests of the shareholders, and valued fairly.

Were there regulations in place to support the deal?

No, there was no regulatory set up. There are no ESCA [Emirates Securities & Commodities Authority] rules on the merger of two listed companies and ESCA appointed its own mergers and acquisitions legal adviser. ESCA, the central bank and the economy ministry played a very pro-active role. They were clear that what they were doing here would set a precedent.

We created a holding company of EBI and NBD called Emirates NBD. Usually, you cannot list without a two-year track record, so we were an exception. We got around that by getting approval from the Council of Ministers.

How did you decide the share price?

We took the last EBI share price of AED9.30 [in July, when both boards approved the merger]. EBI shareholders got one-for-one shares [in the new entity]. NBD shareholders got 0.95 shares for one NBD share. Existing shareholders have done well. The bank listed at AED9.30 and the price has settled at AED14-15. We looked at what the two institutions were going to create and the share price reflects that expectation.

It is effectively a takeover of NBD by EBI. How did NBD shareholders react?

At the shareholders’ meetings in September, one of the issues brought up was the share price. However, if it was share-for-share, NBD shareholders would have got 0.84 for one. At 0.95, they were delivered a premium. One of the challenges was to communicate to shareholders the nuances of the deal. It is market practice to offer a premium to the minority shareholder base.

The NBD shareholder stake in the merged entity was reduced to 35 per cent [of the public’s shares]. They had to hand over their majority and lose their influence. The bigger shareholders did not mind the deal because they got a share in something bigger.

Did all shareholders agree to the merger?

We needed concurrence of 100 per cent of shareholders and we got 100 per cent. Only five or seven could not be reached or had shares under litigation.

How was the management of the institution decided?

The chairman of the board [Ahmed Humaid al-Tayer] was decided by the board and the government. The board includes six members from each institution. The other appointments were done by agreement of the two boards.

Key positions such as the chief executive officer (CEO) and chief financial officer were decided up front. Everything else was then decided by the CEO and brought to the board. The head of retail, wealth management and cards are defined. However, at the operating level, people still look after EIB or NBD.

Emirates NBD in numbers

Loans: $41.4bn

Deposits: $33.8bn

Assets: $69.1bn

Cost/income ratio: 38 per cent

Source: Emirates NBD

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