Abu Dhabi Explores Global Banking Opportunities Backed by Massive US $1Trillion

Although Abu Dhabi has achieved some niche deals in the financial industry, it continues to search for significant transactions.

Abu Dhabi, the oil-rich emirate, has been on a quest to establish itself as a global financial powerhouse, but its recent attempts at ambitious acquisitions in the international banking sector have faced setbacks. Despite managing approximately $1.5 trillion of sovereign wealth and housing prominent funds like the Abu Dhabi Investment Authority and Mubadala Investment Co, the emirate has struggled to seal major deals.

One potential acquisition involved discussions between the Abu Dhabi wealth fund ADQ and boutique investment bank Lazard Ltd. However, talks quickly faltered due to disagreements over the future independence of the 175-year-old Wall Street firm. Similarly, First Abu Dhabi Bank PJSC considered a substantial offer for Standard Chartered plc, but the deal failed to materialize. Additionally, Royal Group, chaired by UAE national security adviser Sheikh Tahnoon bin Zayed Al Nahyan, contemplated acquiring the UK arm of Silicon Valley Bank but lost out to HSBC Holdings plc.

Although Abu Dhabi has achieved some niche deals in the financial industry, it continues to search for significant transactions. The emirate’s expansion is driven by the ruling Al Nahyan family’s ambition, particularly Sheikh Tahnoon, to enhance its global presence and foster growth opportunities for its banking sector.

“The commercial banking sector in Abu Dhabi remains largely localized despite the substantial balance sheets of its megabanks,” noted Karim Souaid, managing partner of Growthgate Capital. “The sector is poised to go global in order to follow the diversification policy, recycle its petro-dollars, and capture new opportunities.”

With a relatively small population of just over nine million people, the UAE already hosts numerous regional and foreign banks. As expansion prospects dwindle in the domestic market, Abu Dhabi’s financial institutions are increasingly looking to expand overseas. While First Abu Dhabi Bank (FAB) and Qatar National Bank vie for the title of the Middle East’s largest lender, their international growth has primarily focused on regional countries such as Turkey and Egypt.

Abu Dhabi’s attempts at takeovers reflect the outsized ambitions of the wealthiest Middle Eastern institutions to play a more prominent role in global finance. However, they also highlight the challenges they face in realizing their aspirations. Regulatory hurdles, compliance issues, and differences in scale between potential partners have posed obstacles to successful acquisitions.

Despite some unsuccessful discussions, Abu Dhabi has seen a few victories. Mubadala’s purchase of a majority stake in Fortress Investment Group, valued at over $2 billion, demonstrated the emirate’s expanding influence. Flush with cash from oil revenues, the region’s financial institutions have the capacity to engage in rescue packages and large deals, as demonstrated during the global financial crisis in 2008 when Gulf monarchies invested in Western lenders.

ADQ and International Holding Co, both chaired by Sheikh Tahnoon, recently formed a new investment group in collaboration with US private equity firm General Atlantic. This entity aims to become the largest asset manager in the region. A potential acquisition of Lazard, which manages approximately $235 billion of assets, would have significantly enhanced ADQ’s capabilities. While ADQ declined to comment, their pursuit of strategic opportunities remains evident.

A successful acquisition of Standard Chartered, a bank with a balance sheet twice the size of FAB, would have transformed FAB into an emerging markets banking giant with assets exceeding $1 trillion. However, FAB confirmed it was no longer considering an offer after initial exploration. Analysts anticipate that FAB will continue its pursuit of deals as it seeks expansion beyond UAE to sustain its growth momentum.

“For FAB to continue growing at the same pace of recent years, it needs to look for expansion outside the UAE,” said Shabbir Malik, a banking analyst at EFG-Hermes. “The short- and near-term outlook for their stock and financial performance will be shaped by the quality of M&A it does.”

Abu Dhabi’s ambitions remain undeterred despite recent challenges, as it strives to establish a stronger foothold in the global financial landscape.