AMMB/RHBCAP ... Mar11

Source say a proposal to merge AMMB and RHB Capital, which first surfaced in 2007 is back on the table. However, whether or not it will successfully cross the finishing line this time round remains to be seen.

The merger has been proposed to the top officials of both banks but is till too early to say and things are still fluid.

The proposed merger will involve a number of things. One is Abu Dhabi Commercial Bank (ADCB), which is in the process of trying to well its 25% stake in RHB Capital. Then, there is ANZ, which is said to be keen to raise its stake in AMMB. A merger between AMMB and RHB Capital could pave the way for both foreign banks to realize their plans. ANZ could acquire ADCB’s stake and eventually end up with a bigger stake in the enlarged banking group. This is subject to BNM approval. The EPF would also hold a substantial stake in a larger banking group.

ADCB will eventually have to sell its stake because the National Bank of Abu Dhabi has received a licence to operate in Malaysia from 2011.

An investor cannot hold substantial stakes in two banks in Malaysia. Both ADCB and NBAD share the same shareholder – Abu Dhabi Investment Bank, which is the Abu Dhabi government’s investment arm.

The rationale for the merger makes sense. There is obvious synergy between the two. AMMB will benefit from the deposit base that RHB Capital will gain from AMMB’s foreign partnership. Both banks will also be able to beef up their investment banking business together. They will benefit from having strong shareholders and a large balance sheet.