Shares in Abu Dhabi banks soared on Sunday after National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB) confirmed they were in merger talks. Other Gulf stock markets were mixed while an interest rate increase dragged Egypt down.
NBAD and FGB confirmed in a brief statement they were discussing a merger or combination of their businesses, in what would create one of the largest banks by assets in the Middle East and Africa.
Many analysts said it was too early to take positions in the stocks before details were known.
Some said a merger could benefit both shareholders. Arqaam Capital said FGB would benefit from a stronger wholesale banking operation while NBAD was underrepresented in retail banking.
"We see strong merits of this potential transaction for both parties," Arqaam said.
But HSBC predicted a pure merger would benefit only NBAD, while a merger through acquisition would destroy shareholder value at both banks. "A share swap scenario presents significant dilution risks to shareholders of both banks," it said.
Nevertheless, local retail investors cheered the idea of an Abu Dhabi mega-bank, with NBAD shares jumping the 15 percent daily limit in their heaviest trade since April 2015, and FGB gaining 11.5 percent in its highest volume since November 2014.
Other Abu Dhabi bank shares also rose, partly on speculation they might be involved in further mergers and acquisitions activity as the industry consolidated. Union National Bank climbed 7.0 percent.
Abu Dhabi's main stock index added 4.7 percent in its heaviest trading day since November 2014.
As attention switched to Abu Dhabi, trading volume in Dubai shrank to very low levels and the index fell 0.3 percent. Dubai's largest listed lender, Emirates NBD, edged down 0.1 percent.
Saudi Arabia closed flat in modest volume after spending most of the day higher. Petrochemical shares were firm after oil prices rebounded on Friday.
National Gas and Industrialisation rose sharply for a fourth straight day in unusually heavy trade, gaining 5.0 percent. The firm, which distributes liquefied petroleum gas, has been rising partly on hopes it may benefit from projects in Saudi Arabia's economic reform plan announced this month.
Kuwait's index rose 1.2 percent, buoyed by news an investment group led by prominent Dubai businessman Mohamed Alabbar had agreed to buy a majority stake in Kuwait Food Co (Americana) from the Kharafi family for about $2.4 billion.
After the Dubai group completes the purchase, it will launch a mandatory take-over offer to remaining Americana shareholders at 2.650 dinars. Americana shares were bid at their upper daily limit of 2.2 dinars on Sunday but did not trade because holders were not willing to sell at that level.
Nevertheless, the boost to the finances of the Kharafis, a major merchant family in Kuwait, was seen as positive for the market as a whole. National Investment Co, an investment and asset management vehicle of the family, jumped 5.3 percent.
In Egypt, the central bank raised its key interest rates by 100 basis points after the close on Thursday to their highest levels in years to rein in surging inflation and ease downward pressure on the Egyptian pound.
Analysts had been roughly evenly split on whether the central bank would tighten policy. Few analysts who expected a tightening had predicted such a large increase, so the decision hurt the stocks, especially since many economists think more tightening and currency depreciation are likely in the second half of this year.
The Cairo stock index dropped 1.1 percent. Ezz Steel, exposed to higher interest rates as a borrower for capital-intensive projects, dropped 2.3 percent.
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