Thu, Apr 27, 2017 - Page 10 News List

Saudi ventures of HSBC and RBS discuss merger

Bloomberg

HSBC Holdings PLC’s and Royal Bank of Scotland Group PLC’s (RBS) Saudi ventures said they are in talks to combine, potentially giving RBS an exit from an asset the state-owned British bank has reportedly sought to sell for years.

The board of Alawwal Bank, which is 40 percent owned by RBS, agreed to start initial discussions with Saudi British Bank (SABB), according to a statement on the Riyadh stock exchange’s Web site on Tuesday.

Both lenders are based in Riyadh, with HSBC owning 40 percent of SABB.

Any deal would come as the firms grapple with how to approach the Middle East’s biggest economy, which is embarking on an unprecedented diversification and privatization plan, but still blocks foreign control of local banks.

London-based HSBC’s successes in Saudi Arabia include winning a key role advising on the initial public offering of Saudi Arabian Oil Co, potentially the biggest-ever share sale.

Citigroup Inc, after a 13-year absence from the market, on Tuesday said that it received an investment-banking license from Saudi authorities.

Other lenders are concerned about the prospect of bad loans hitting the retail and commercial banking system, as Saudi authorities impose budget austerity. Lending by Saudi banks to the private sector was expanding rapidly as recently as last year, but has since stalled. In February, annual growth slowed to 0.3 percent, the lowest figure since 2009.

A merger might not necessarily take place, Alawwal said, adding that it does not expect any job losses should a deal be completed.

The Saudi Arabian Monetary Authority was approached before talks started, according to the statement.

France’s Credit Agricole SA, which owns 31 percent of Banque Saudi Fransi, is also considering selling out of the kingdom, people familiar with the matter said last month.

According to analysts and people familiar with potential transactions, Middle Eastern groups have been more interested in Saudi banking assets than Western lenders of late.

RBS’ stake in Alawwal is worth about US$1.3 billion, according to data compiled by Bloomberg.

Alawwal on Monday last week reported a 37 percent drop in first-quarter profit, missing analysts’ estimates.

Its shares are down about 25 percent this year, more than double the 12 percent drop of SAAB stock.

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