Dubai government announces bank takeover
Emirates NBD, a bank 56 per cent owned by the Dubai government, has taken over Dubai Bank, a troubled Islamic lender that was bailed out by the government in May.
The takeover was ordered by Sheikh Mohammed bin Rashid al-Maktoum, the ruler of Dubai on 11 October. No financial details of the transaction have been disclosed.
Dubai Bank was previously owned by Dubai Holding and Emaar Properties and the lender’s exposure to Dubai Holding is thought to be at the root of its problems. Dubai Holding is currently restructuring about $10bn of debt and Dubai Bank reported losses of AED291m ($79m) in 2009, the last time it released financial results.
Emirates NBD is understood to have been working on the takeover for several months and the announcement ends months of speculation that a deal was planned.
“Dubai Government is keen to take the necessary steps to empower financial institutions to fully operate in a way that serves the national economy and consolidate the country’s position as a first class international financial hub,” said a statement announcing the takeover.
When the Dubai government initially took control of Dubai Bank in May as part of its bailout, it said it would consider a merger with another lender and also inject fresh capital to protect depositors. The move has been welcomed by some, who see it as a sign that Dubai is still willing and able to provide financial support to troubled companies indirectly owned by the government.
However, shares in Emirates NBD fell 2.6 per cent during the day of the announcement as the lack of transparency about the impact on the banks’ business raised concerns. A main concern is whether Emirates NBD, which was formed by the merger of Emirates International Bank and National Bank of Dubai in 2007, will have to take additional provisions for losses at Dubai Bank, and how it will go about merging the lender with it existing Islamic banking operation, Emirates Islamic Bank.
A MEED Subscription...
Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.