Company: Emirates NBD Conference Title: Takeover of Dubai Bank Presenter: Rick Pudner Tuesday 11 th October h00 BST

Transcription

1 Company: Emirates NBD Conference Title: Takeover of Dubai Bank Presenter: Rick Pudner Date: Tuesday 11 th October h00 BST Ladies and gentlemen, welcome to the Emirates NBD Analyst & Investor Call to discuss the Emirates NBD Takeover of Dubai Bank. If we are all ready to begin I will now pass the call over to our host, Mr. Rick Pudner, CEO of Emirates NBD. Thank you very much operator, good afternoon everybody, I d like to welcome you all to this call. Supporting me in today s call is Surya Subramanian who is the Chief Financial Officer of Emirates NBD. I also have Mr. Giel-Jan Van Der Tol who is the CEO of Dubai Bank and Mr. Ahmed El Shall who is also the CFO of Dubai Bank, so we are team here to obviously take your questions and after I have introduced the topic we will go over to questions and please feel free to ask. In summary obviously you ve seen in the press Emirates NBD is to take over Dubai Bank as per the order of His Highness Sheikh Mohammed bin Rashid. This acquisition is in line with the government efforts to reinforce the United Arab Emirates position as a first class regional and international financial hub. There is full support from the Dubai Government for this takeover. It will strengthen the domestic banking sector and will reinforce the trust in it and we will obviously be focusing on providing the best future service to the Dubai Bank customers. As a matter of interest and information Emirates NBD s financial results will not be affected upon the acquisition in terms of P&L and non-performing loans due to the transaction structure and support provided by the Government of Dubai. Obviously we will provide further details when the final deal has been completed, when final details have been completed. Page 1 Ref Oct 2011

2 So that in a nutshell is where we are. We are holding obviously Dubai Bank going forward as a subsidiary of Emirates NBD. It will remain operating as Dubai Bank for the foreseeable future and that is the overall structure as we move forward, so very happy to, in the interest of obviously time, to throw it open to yourselves for questions which we would be happy to answer. We will now begin the question and answer session. If you wish to ask a question please press *1 on your telephone and wait for your name to be announced. If you wish to cancel your request please press *2. Again press *1 if you have a question. Our first question comes from Tatiana Boroditskaya of UBS. Please go ahead. Tatiana Boroditskaya: Good afternoon gentlemen, thank you very much for the opportunity to speak about this deal. A few questions from my side, you just mentioned that Emirate NBD IFRS results will not be affected in terms of P&L and payout due to the transaction structure. Do we expect any impact on the capital position of Emirates NBD? A related question, do you expect any capital injection into Dubai Bank coming from Emirates NBD? Just two more questions related to Dubai Bank, can you please tell us if first half 11 results are available for Dubai Bank and if not what was the net profit on that loss for this period and what were the total assets size for the bank? Thank you. Ok Tatiana, I will take the first question. The impact, this will be obviously fully supported by Emirates NBD s capital base. The impact on our capital will be a decline of 100 basis points approximately in overall capital. This is obviously supporting the good book of Dubai Bank. On the second one in terms of numbers I will hand over to Surya. Page 2 Ref Oct 2011

3 The balance sheet and I will give you numbers in order of magnitude the Emirates NBD balance sheet order of magnitude is about AED 270 billion of which customer assets and liabilities are about AED 200 billion. The Dubai Bank balance sheet footing is about AED 12 billion, so in fact we are talking about 6%, 7% of our balance sheet. In terms of published results of Dubai Bank my understanding is the last published results were 2009 which is publicly available and there haven t been any results published after that. Tatiana Boroditskaya: Excellent. Coming back to my first question, do we expect any capital injection from Emirates NBD into Dubai Bank? As I said at the beginning Emirates NBD will be capitalising Dubai Bank using its existing capital base Tatiana, so effectively on consolidation you will see because of supporting the good assets of Dubai Bank you will see a decline in our capital ratios as the group of about 100 basis points, so I think at the moment it s about 20.7 which will go down if nothing else changed to 19.6 or I just want to clarify that as Rick mentioned in his opening address on the date of takeover this has zero P&L impact to Emirates NBD on takeover, zero NPL in fact and therefore there is no need for any capital to support anything other than the good book in Dubai Bank. Tatiana Boroditskaya: Excellent, just a last question to clarify: was there a net profit or net loss in first half 11 on Dubai Bank, if you can disclose this please? That information is not available for disclosure at the moment. Tatiana Boroditskaya: Alright. Thank you very much. Thank you. Page 3 Ref Oct 2011

4 Our next question comes from Murad Ansari of EFG. Please go ahead. Murad Ansari: Good afternoon and thank you for this call. A couple of questions, firstly you said that Dubai Bank is going to continue operating as a separate entity. I just wanted to understand what is the rationale behind that given that it has been fully consolidated with Emirates NBD and the business is essentially the same? Second is that you say that there is going to be no P&L impact. I am assuming that you are saying that there s going to be no negative P&L impact from the opposition. Thirdly if it s possible to give just a brief highlight of the recapitalisation that happened at Dubai Bank earlier this year and how has the balance sheet changed, specifically the asset quality side of Dubai Bank? Thank you. I will take the first one in terms of structure. The way it will work going forward is that Dubai Bank will join the Emirates NBD family as a fully owned subsidiary and will continue to operate with its brand, its branches etc. Obviously as we go through the next 12 months or so we will be looking at synergies and areas of efficiency that we can focus on in terms of a business plan going forward but as we currently are and move forward it will be a separate subsidiary within the stable of the Emirates NBD Group. On the second one on P&L Surya will take that. Just to clarify my comment, no P&L impact was on the basis of the transaction and you are right, there s no negative and there s no positive P&L on the date of transaction. Going forward to the extent we have a good bank and to the extent we have a franchise business to be had, there is money to be made. I will pass over the first question. Giel-Jan Van Der Tol: This is the CEO of Dubai Bank Giel-Jan Van Der Tol. I can tell you that following the announcement made by the Dubai Government on 16 th May that they were taking over Dubai Bank, the Dubai Government has not made any subsequent investment in terms of Page 4 Ref Oct 2011

5 financial investment in the bank. We have been continuing to work together with a number of stakeholders in orchestrated fashion between the regulator, the local and the federal government to work on a suitable permanent solution for the bank which has eventually culminated into today s announcement. Murad Ansari: Just a follow-up question on this, is there a timeline that you re looking at in terms of when this will be fully consolidated into Emirates NBD? The next date when you will see the consolidated results is clearly when we announce our Q4 results. As at Q3 we did not own Dubai Bank so what you will see on October 24 th when we release our balance sheet will be Emirates NBD excluding Dubai Bank. What you see in Q4 which will be more towards the end of January/early February next year will be Emirates NBD including Dubai Bank. Murad Ansari: Thank you. Thanks. As a reminder ladies and gentlemen pleas press *1 to ask a question. Our next question comes from Amin Virani of Union National Bank. Please go ahead. Mona (UNB): Yes, this is Mona from Union National Bank. My question is how it will not affect the NPLs of Emirates NBD as we understand that Dubai Bank has huge exposure to Dubai related entities which are already in default? The second question: did Dubai Bank already get support regarding those exposures? Thank you. I think it is important to look at this issue going forward. I personally wouldn t look backwards because we have an entity now that has come into the Emirates NBD family. Page 5 Ref Oct 2011

6 There is a transaction structure that assists the takeover in a manner where there is no P&L impact, there s no NPL impact. We will share with you the details of the transaction structure in Q4 when we disclose our results. We do have to take this in stages, as you see that we took over the bank today, we have to work our way through the completion and there is government support to the takeover. Mona (UNB): By transaction strategy you mean that you are going to put aside the bad assets for example, something like that? We are taking over the entire balance sheet of Dubai Bank. It comes together in a structure that allows us to report nil P&L impact and nil NPL impact on the date of transfer. Mona (UNB): So what happens to Dubai Bank s exposure to Dubai Group? Sorry, can you repeat that Mona? Those would be fair valued on the date of takeover. Mona (UNB): Are they classified or provided for? Well, whether they are provided for or not, the historic entity is not of relevance to us. If we take it over at fair value that s what matters to us. So it s not just stock, it s the entire balance sheet: the banking assets, the non-banking assets, the customer liabilities, all of these will be fair valued and we will take it over. Mona (UNB): Ok, thank you. Thanks. Page 6 Ref Oct 2011

7 Our next question comes from Ali Sheikofti of Goldman Sachs. Ali Sheikofti: Gentlemen, my question was answered, thank you very much. Ok, thank you. We now take a question from Ankush Shah of Achem. Please go ahead. Ankush Shah: Hello gentlemen, thank you for the call. I understand that there s no NPL impact immediately on the announcement of the transaction but going forward is it fair to assume that the bad assets will somehow be ring-fenced or there will be some kind of implicit or explicit government support to minimise losses going forward? It would be fair to say that between the structure and the government support it would ensure that there are no new losses that come out of that portfolio. Ankush Shah: Ok. Great, thanks for clarifying that. We will now take a question from Antoine Jacoub of Barclays. Please go ahead. Antoine Jacoub: Hi, this is Antoine from Barclays. Most of my questions have been answered, just one remaining. If you can share with us the total loans NPL figure and provision coverage of Dubai Bank as of June 2011? Ahmed Elshall: I m afraid this information is not public yet so we cannot disclose it. Page 7 Ref Oct 2011

8 Did you catch that Antoine because we ve not got a very good speaker here. Did you catch the answer? Antoine Jakub: Yes, as of June is not available. Would it be possible to get the one as of December 2010 then? I think December 2009 is the last publicly available information. Antoine Jakub: Because I see that the balance sheet has changed from 17 billion to 12 billion, so have there been any loan write-offs during that period? Ahmed El Shall: That was only an estimate Antoine. The actual balance sheet as it stands today although it has shrunk, it is definitely higher than the 12 billion that was submitted by Surya. Antoine Jakub: Ok, good. Thank you. Once again please press *1 to ask a question. Our next question comes from Rahul Shah of Deutsche Bank. Please go ahead. Rahul Shah: Hi, good afternoon. I have a number of questions, firstly in relation to Dubai Bank I understand that you re unable to give numbers at this time but in qualitative terms could you describe what has happened since the government took ownership of that business in May in terms of have there been capital injections of asset write-downs? Has there been any other restructuring of the business that has taken place between May and today? The second question just in terms of the transaction terms, could you give us some more details on the consideration that is being paid? Thirdly the rationale for the transaction from Emirates NBD s side, you mentioned that the brand is being retained. I would be interested to know what gaps in ENBD s portfolio Dubai Bank could fill? An additional question on corporate governance, I Page 8 Ref Oct 2011

9 would be interested to know from ENBD s side what independent advice the bank has received and whether there has been some sort of fair value opinion given? Then final question I think at the beginning of the call you gave a standalone balance sheet figure for Emirates NBD of 270 billion. This seems significantly lower than the figure as of H1, so I just wanted some clarification on that. Thank you. coming up. Ok Rahul, we ll have to take your questions one at a time I m afraid, a bit of history Giel-Jan Van Der Tol: Taking your first question what has happened to the announcement on 16 th May, the government takeover of Dubai Bank, is essentially we have rolled out our new client strategy on the retail side to the market which has led to significant improvement in our liquidity profile of the bank. We used to have a number of liquidity challenges towards the end of 2010 which have been completely dealt with in the meantime, now the bank is over-liquid and in the meantime we have also been rolling out a new corporate banking strategy which is ready to be executed as soon as we have the bank properly recapitalised. We have reached that stage right now so we are right now in a position to continue to do business again. We re back in the market, we have repositioned the bank as a prestigious bank for affluent individuals on the retail side; and on the corporate banking side we are building a sophisticated merchant bank for mid-size corporates. The consideration which was your second question On the consideration and the transaction terms I would respect if you could wait until they complete the transaction and disclose in our Q4 results. I will just reiterate that the transaction is being done at fair value and I will just take over the other question on the balance sheet side. I think you re referring to the fact that in Q2 our balance sheet size was 288 billion and right now I am talking a number of 270. Now these are natural movements, we will get into Page 9 Ref Oct 2011

10 the details of that when we disclose our Q3 results and you will have more opportunity to question Ben and I on the balance sheet component and you would also have all the details, financial disclosures at that time that we provide in the quarterly results. As to the rationale for the transaction, I think obviously I see this as very positive for Dubai. It will assist in re-establishing more investor confidence in Dubai, that Dubai is able to sort out some of the issues that are surrounding itself in the financial markets, this is a very good sign for that. For the company itself the transaction is done on the terms that we think it s a win-win for both ourselves as a company and also for the Government of Dubai going forward. So we will sit down and explore the synergies available from the transaction over the next few weeks and months. There are bound to be synergies very evident and then also looking at business models, obviously we currently have Emirates Islamic Bank as well and looking at business models to see where we can maximise those synergies. Rahul Shah: Thank you very much gentlemen. On the issue of advice given to Emirates NBD regarding this transaction? This is a deal that has been discussed and decided on internally. Rahul Shah: Ok, thank you. Just a follow-up on the first question, regarding what has happened since May, from a balance sheet or financial strength perspective, has there been any sort of change because I think many of the programmes you have suggested could well have taken place without a change in ownership. Sorry, what was the last sentence again? Page 10 Ref Oct 2011

11 Rahul Shah: I was just wondering if there had been any balance sheet restructuring that had also taken place since May since many of the initiatives that you highlighted could have taken place without the change in ownership? Ahmed El Shall: It s a question of what happened since May when the announcement was made that the Dubai Government was taking over the bank there hasn t really been any significant change in the balance sheet. The same level of NPL remains at the level that it was at the end of May and in fact we have grown our retail assets and we have been quite successful in launching our new programmes on the market and by so doing we are capable of offsetting some of the negative impact that comes from some of the exposures that need NPLs. Rahul Shah: Thank you very much. Thank you. We now take a question from [Karim Jetha of Blakeney]. Please go ahead. Karim Jetha: Hi, good afternoon gentlemen. I just wanted to know how today s news is going to impact your strategy going forward I guess particularly with regards acquisitions? From a strategy point of view as Emirates NBD Group it doesn t affect our direction at all. We had a number of discussions with our board in terms of looking at expansion plans, both organic and inorganic and the board are supportive with our continuing look for opportunities to expand our international reach. Karim Jetta: Ok, thanks very much. Page 11 Ref Oct 2011

12 As a reminder please press *1 to ask a question. We will now take a follow-up question from Ali Sheikofti. Please go ahead. Ali Sheikofti: Thank you gentlemen. Just one question with regards to the transaction and the financing. Will this be based on a fully cash basis or will it be done through some sort of share swaps? That s it. Surya, over to you. Thank you Rick. The transaction will be on a cash basis. Karim Jetta: Alright, thank you very much. Thanks Karim. This concludes today s question and answer session. Any further questions can be sent to our Investor Relations team. You should all have their contact details on the call invitation. Ladies and gentlemen, at this point we will be handing the call back to Mr. Rick Pudner for his closing remarks. Thank you very much operator. Thank you everybody for your attendance on the call. We look forward to talking to all of you again on October 24 th when we announce our third quarter results. Thank you very much. Ladies and gentlemen, that concludes today s conference call. Thank you for participating today. Page 12 Ref Oct 2011