Cashing in: Amalgamation of HBL and Barclays Bank

By Kazim Alam

KARACHI: Habib Bank (HBL) and Barclays Bank have entered an agreement, which will result in the amalgamation of their business and operations, according to a stock exchange filing on Thursday.

The amalgamation is subject to regulatory approvals from the State Bank of Pakistan (SBP) and the Competition Commission of Pakistan (CCP). Consent of HBL shareholders will also be sought at the bank’s general meeting.

“Upon completion of the proposed transaction, Barclays Pakistan business will be amalgamated within and into HBL,” said the public notice without mentioning the value of the proposed deal.

However, analysts say the ballpark figure for the proposed transaction should be around Rs10 billion.

Speaking to The Express Tribune, Taurus Securities Head of Research Zeeshan Afzal said the transaction will likely take place at a relatively small premium. “I don’t expect a huge price tag because the brand name (Barclays) will cease to exist after the amalgamation. I think the deal will be closed at a price-to-book multiple of between 1 and 1.5,” said Afzal.

At the end of June 2014, total equity of Barclays Bank Pakistan stood at Rs7.5 billion. As per the expected range of the price-to-book multiple, the amalgamation of the business and operations of Barclays Bank Pakistan should cost HBL Rs7.5-11.2 billion.

With total assets amounting to Rs49.9 billion, Barclays Pakistan was the 28th largest bank operating in the country at the end of the first six months of 2014. Its pre-tax profit for January-June was Rs411.7 million, 67.4% up from the comparable six-month period of the preceding year.

The loan portfolio of Baclays Bank Pakistan seems to be in good shape, as the share of non-performing advances in gross loans was only 4.3% at the end of June 2014. Within the small banks that have assets less than Rs100 billion, only Sindh Bank and Bank Islami had lower non-performing advances as a percentage of their gross loans at the end of June 2014.

The likely sale of Barclays Bank’s Pakistan operations follows the sale of HSBC Bank Middle East to Meezan Bank.

With an asset base of over Rs1.7 trillion, HBL is the largest Pakistani commercial bank in terms of both profitability and total assets. Its net profit for 2014 was Rs31.1 billion, up a massive 42% from the comparable period of the preceding year. HBL operates nearly 1,600 branches while Barclays Bank Pakistan runs seven branches only.

HBL employed about 13,000 people at the end of 2013 while the number of employees at Barclays Bank Pakistan was only 247 at the time.

However, the cost per staff member at Barclays Bank was significantly higher than the cost per employee at HBL. While HBL incurred a cost per staff member of Rs1.38 million in 2013, Barclays Bank’s average remained Rs2.76 million over the same year.

HBL also acquired the consumer portfolio of Citibank Pakistan in 2012. HBL ‘completely embedded’ the acquisition of Citibank’s consumer portfolio in 2014, according to its latest annual report, and managed to retain nearly 90% of customers.

Published in The Express Tribune, March  13th,  2015.

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