Mergers and aquisitions

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Mergers and aquisitions

  1. 1. THE MERGERS & AMALGAMTIONS In Pakistan’s Banking Sector The case provides an overview and the short-term effect of the decision of merging of RBS in Faysal Bank here, and amalgamation of Al Baraqa and Emirates Global in Pakistan. Jawwad Jaskani – Muhammad Omair – Huzaifa Amin Rana Umar Farooq – Saifal Hussain
  2. 2. The case provides an overview and the shortterm effect of the decision of merging of RBS with Faysal Bank here in Pakistan, with a brief detail of the amalgamation between Al Baraka Islamic Bank Pakistan (AIBP) and Emirates Global Pakistan, into a single new bank Al Baraka Bank Pakistan Limited. Starting with the introduction of the banks, their backgrounds, the scope of the operations and profitability, and then moves on to the advantages and reasons for acquiring. The Royal Bank of Scotland is one of the retail banking subsidiaries of the Royal Bank of Scotland Group, and together with some other local banks, provides branch banking facilities throughout the British Isles in addition to having a global reach in many other countries. When RBS entered Pakistan it developed local knowledge and combined it with global expertise and financial strength and strived to deliver value to Pakistani customer. RBS had offices in all major cities including Karachi, Lahore, Islamabad and Rawalpindi and a significant presence in the Pakistani market. It claimed to focus on providing personal and business banking services as well as building extensive relationships with corporate and financial institutions. RBS Pakistan combined local expertise, an extensive network of global contacts and a worldwide distribution platform to deliver a full spectrum of products and services which included Financial markets Transaction banking Financial advisory Mergers and acquisitions Shariah- compliant products Faysal bank limited started its operations in Pakistan on October 3, 1994 as a public limited company under the company’s ordinance 1984. Currently Faysal bank has its shares listed on Karachi, Lahore and Islamabad stock exchange and is actively handling its operations in these cities. It is engaged in customer, commercial, corporate and Islamic banking activities. The bank has a bright future and has a long term credit rating of ‘AA’ and a short term rating as ‘A1+’ as determined by Pakistan credit rating agency limited (PACRA) and JCR-VIS credit rating company. Faysal bank strives to achieve excellence in whatever they do and are working towards achieving leadership in providing financial services in chosen markets through innovation. Presently Faysal bank is providing services such as: Deposit products Consumer lending Retail services Corporate and banking services Islamic banking Bancassurrance Priority banking Merged In RBS had a merger with the Dutch bank ABN Amro a few years back, but that too did not help much in supporting and firming the shaky financial condition of the bank, and thus the subsequent downfall of the bank led to the decision of the management at RBS to end their operations in Asia by withdrawing their business in the retail and commercial sectors. Earlier the decision was to sell of RBS to the MCB Bank of Pakistan for $87 million but it never got the regulatory approval.
  3. 3. Later, Faysal bank limited took over the controlling interests in the Pakistan operations of Royal Bank of Scotland Limited (RBS Pakistan), from the RBS Group for Euro 41 million which culminates in a share price of 2.5. In local currency this amount stands at 4.298 billion. This acquisition has extended and rooted Faysal Bank’s hold to over 200 branches, with combined business assets of over 260 billion, strengthening its balance sheet and improving its position amongst its competitor in the market. The merger of RBS Pakistan into Faysal Bank Limited was completed by January, 2011 thereby achieving a significant milestone in its growth strategy. RBS had 1,717,981,931 ordinary shares listed on the Karachi stock exchange, Lahore stock exchange and Islamabad stock exchange which are now owned by Faysal bank. Analysis of Strategic Factors (SWOT):  Opportunities:          Better technology like Symbols, implementation of Financial Oracle, HRMS. Very attractive salary packages to employees. Heavy internal financing i.e. from heavily growing deposits. Attracted big corporations like SNGPL, Attock Group of Companies, Zaver Petroleum, etc. Weaknesses:     Weak branch network across the country. Attracting only upper and middle class customers. Low number of ATMs. Market share is declining from new competition. It can capture agriculture market by offering innovative agri finance products. Impressive print and electronic media campaign highlighting FBL’s role in the development of rural economy of Pakistan can give it competitive edge over its competitors. Through re-branching, FBL can capture lot of new customers. Merger with Barclays or Bank of China or RBS to become part of larger international banking Network and to increase the profit. Threats:  Strengths: Based on financial strength and superior performance, Faysal Bank Limited has been assigned the highest short term rating of A1+ (A One Plus) and AA (Double A) for the long term by JCR-VIS (credit rating Company). Also: Employees’ frustration due to excessive work burden.      Declining trend in banking sector, which can affect it to large extent because of its big Corporate customers which are few in number. Arrival of Barclays and Bank of China in Pakistan, which can increase the competition in Banking sector. Decreasing trend in Earning per share and stock prices. Moving of key employees, e.g. Corporate Relationship Managers, which means moving of Corporate clients to other bank. Motivation behind merger & the obvious advantages: According to the analysts there were two main reasons behind this merger for the management at Faysal Bank, first was to increase its market share, and the second to develop themselves as the providers of premium banking products. Also the motivation of becoming the 10thbiggest bank of the country and the obvious probability of Faysal Bank getting larger than Bank Al Habib and Askari Bank. Another reason was also that
  4. 4. the brand equity of the bank is quite large and the brand itself, RBS is a plus point, as it is globally well recognized. The acquisition also helped Faysal bank in acquiring the some of the best human capital in Pakistan in terms of banking talent. AMALGAMATION OF AL BARAKA ISLAMIC BANK AND EMIRATES GLOBAL (PAKISTAN) EGIBL, Syed Tariq Husain, at a press briefing here on Tuesday Al Baraka Bank (Pakistan) Limited (ABPL) is the result of a merger between Al Baraka Islamic Bank Pakistan (AIBP), the branch operations of Al Baraka Islamic Bank (AIB) Bahrain and Emirates Global Islamic Bank (Pakistan). The merged entity commenced operations on November 1st 2010. The merger, a first in the Islamic Banking sector in Pakistan, positions ABPL to play an important role in further growing an industry which has witnessed tremendous growth over the last 5 years. KARACHI: Emirates Global Islamic Bank (EGIBL) and Al Baraka Islamic Bank will soon merge into one single bank. This was announced by the Chief Executive Officer of “An extraordinary general meeting of shareholders held on Tuesday, approved the scheme of amalgamation,” declared Husain. The new institution will be called Al Baraka Bank (Pakistan) Limited. With a combined asset base of more than $582 million, the bank will boast 89 branches across 40 cities and towns. EGIBL will contribute about $175 million to the asset base and 60 branches to the network. Al Baraka will be the majority stakeholder in the agreement, but will merge into Emirates Global because the latter is a listed company in Pakistan, while Al Baraka is currently a branch of the international Al Baraka Banking Group. It was made clear that all employees of EGIBL will be retained, but the positions of senior level management have not been finalised as yet. Officials from both banks have expressed hope that the process will be completed by the end
  5. 5. of August as due diligence procedures on legal and financial conditions have already been completed. The merger will be formalised as soon as the State Bank of Pakistan (SBP) issues a formal approval. Talks between the two banks were initiated last year and all stakeholders were taken on board before the decision was made. The merged entity will be better positioned to comply with SBP’s regulations concerning minimum capital requirements as well as the condition that 20 per cent of all new branches must be established in rural areas. “Given the international presence of the Al Baraka Banking Group, the merger will also open up international avenues,” hoped Husain. Growth in the banking sector has slowed in the past two fiscal years and smaller banks have suffered significantly due to non-performing loans and shrinkage in consumer banking. “Islamic banks had hoped to capture about 12 per cent of the total banking sector in Pakistan by 2012 but now that seems like a distant target. Islamic banks will probably manage to capture a share of about 9 to 10 per cent by 2012 if they continue to grow at twice the pace of conventional banks like they have in recent months,” remarked Tariq Husain. In response to a question, Husain speculated that SBP would most likely maintain the discount rate in the upcoming monetary policy decision. He added “no one foresees rates coming down because inflation has not come down. Government is taking up liquidity that would otherwise have been available to the private sector.” Commenting on the impact of political and economic instability on banking sector, he said that smaller banks had lagged behind the big five in past months but upcoming results would show that consolidation is underway and balance sheets are significantly healthier compared to last year. th Published in The Express Tribune, July 28 , 2010. LAHORE (PR) - Al Baraka Islamic Bank BSC (C) (Bahrain), wholly owned subsidiary of AL Baraka Banking Group (ABG) (Bahrain), and Emirates Global Islamic Bank announced their intention to merge the branches of Al Baraka Islamic Bank in Pakistan and Emirates Global Thlamic Bank Pakistan under the name of Al Baraka Bank Pakistan. The merger will lead to the emergence of a bank that has assets in excess of $582 million and a network of 90 branches covering 35 cities and towns in Pakistan. The process of obtaining the necessary approvals from the regulatory authorities in Bahrain and Pakistan is under way. On this occasion, Sheikh Saleh Abdullah Kamel, Chairman of Al Baraka Banking Group (ABG), said that the merger between the two banks reflects the groups strategy to expand in the Pakistani market as a part of its global strategies to strengthen its presence and operations in promising Islamic markets. The said merger will create a high value-addition not just for the merged bank but also for the banking and financial market in Pakistan which is considered to be one of the most important markets in the Muslim world. Published at The Nation April 27, 2010 CONCLUSION In both the cases the banks were merged and amalgamated due to the lack of customers and alone they were unable to complete the SBP requirements. Therefore they prefer to work with other bank so that they have a better position and to gain market share. Faysal Bank take hold of RBS because that was an international business subsidiary and had a strong goodwill and market reputation and therefore Faysal Bank became one of the top 10 banks in Pakistan. On the other side Albaraka Islamic Bank and Emirates Global had amalgamation to combine their assets and expertise to operate successfully in Pakistan.

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