Skeletons in the closet, sprawling ownership stymie Gulf bank consolidation

February 17, 2010

Anyone waiting for Gulf banks to consolidate — a long talked about prospect — can forget about it for now.

With debt markets shut, leaving only pricey equity financing, budding suitors are standing frozen, unable to make a commitment.

But the lack of reasonable financing for mergers is not the only obstacle, according to Frederick Stonehouse, head of strategic mergers and acquisitions at Bahrain’s Unicorn Investment Bank .

Valuing the assets of privately-owned banks, the best candidates for consolidation, is no easy task.

“Many of the banks which I feel should be looking for consolidation are unlisted, so how do you value those?” he says.

 And then there is the old, familiar issue of transparency — as in, the lack of it in the region. 

“You think everything may have come out of the woodwork but maybe it hasn’t. You could be going into an institution and paying quite a price for it and then finding that the problems are a lot deeper than you imagined,” he says.

One of the biggest problems is the prevalence of block shareholding in the region’s banks. When you have institutions owned by two dozen members of the same family, who do you go to if you want to make an offer?

“A big issue I’ve found is that it’s also not very clear who owns what, and how you decide who you want to approach if you want to make a friendly approach.”

 The logic to consolidation between the region’s banks is undeniable. But with all these hindrances, who is going to make the first move?

By Raissa Kasolowsky 

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