Business Finance Report on MCB ACQUIRES RBSeport Final MCB ACQUIRES RBS

7/28/2019 Business Finance Report on MCB ACQUIRES RBSeport Final MCB ACQUIRES RBS

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11/12/2009

Submitted By: | Group 5

PROJECT

REPORTMCBACQUIRES RBS


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Business Finance Page 2

TABLE OF CONTENTS

Acknowledgement ..

Executive summary.. 1

The Background.. 4

Previous deals. 5About MCB.. 6

About RBS....10

ABN Amro renamed to RBS in

Pakistan...12

Deal details..15

Post acquisition

effects...16

Conclusion .20

References .21


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ACKNOWLEDGEMENT

First of all, thanks to ALLAH S.W.T, for his mercy and guidance to giving us the

full strength to complete this Report subjected MCB ACQUIRES R.B.S.

Even facing with some difficulties in completing this task, we still managed to

complete it.

We thanks to our respectable teacher, Mr. Ghulam Rasool, who provided us this

challenging opportunity of learning, which turned out to be very knowledgeable

and in-depth learning experience for us regarding the real business situation which

got us down to the brass tacks.

In addition we are also gratefully acknowledging the help to all of our friends who

had shared their time and knowledge in completing this report.

Thank you.

Group 5

(Haris, Zohaid, Haifz Faisal Adnan, Ayaz & Bilal)


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Executive Summary

RBS is the formerly NO 1 bank in the world before selling their operations in Asia. InPakistan, banking giant MCB purchases RBS last month & ANZ takeover RBS in restof Asia.

Given the identical positioning of both the banks in the market, the combined entityof MCB and RBS will deliver economies of scale, a more complete product set, a

stronger operating platform and a wider distribution network. This acquisition willmake MCB stronger and have the opportunity to make their image better.

Though, RBS will officially operated as MCB in next six months but the managementtakeover still remains, which will completely change the internal business processesand policies.

But, The State bank of Pakistan has not yet granted approval to MCBs mergerwith Royal Bank of Scotland, leading to a delay in completion of the acquisitionprocess. According to sources, the central bank has raised objections that approvalwill be granted only when MCB fulfills the requirement regarding completion of

sponsors shares. The central bank has raised the objection over MCBs violation ofclause-4 of banking law. Under the legal requirement, the sponsors shares are to bedeposited at CDC. However, the experts view this requirement as inapplicable in thetransaction in question while the requirement of Central Depository Company is alsonot applicable here. According to experts, State Bank should have scrutinized RoyalBank of Scotlands assets under the respective articles before approving the saiddeal.

Also behind the curtains news that it is a political stint too, Mr. Zardari against theMian Mansha, as he is also the close aide of Mr. Nawaz Sharif.

Initially HBL was also interested but failed to bid more than MCB, remember HBLsowner is Prince Karim A a Khan.


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The Background

MCB Bank is to acquire this from ABN Amro Bank N.V., which isa subsidiary of The Royal Bank of Scotland Group plc.

The Royal Bank of Scotland Group plc has reached agreement in principle for thesale of its 99.37 per cent holding in The Royal Bank of Scotland Limited (RBSPakistan) to MCB Bank Limited (MCB) for a total consideration of $87 million,RBS is 70 per cent owned by the state after a massive bailout from the Britishgovernment last year amid the global financial crisis.Besides MCB Bank, Habib Bank Ltd., Egypt's Orascom Telecom Holdings and localinvestment bank Jehangir Siddiqui Group had evinced interest in buying theassets earlier.The deal would be valued at around $90 million. The Pakistan sale is part ofmoves by part-nationalized RBS to sell assets globally as it tries to exit up to 36countries and focus on its mainly U.K. Core businesses.

Bank of America Merrill Lynch and KASB Securities have advised MCB whileMorgan Stanley has advised The Royal Bank of Scotland Group plc on thetransaction.The RBS sale in Pakistan attracted large banks, like Habib Bank and MCB Bank,while a relatively small Bank JSCL was in the race to win the RBS. The HBL laterwithdrew itself.Industry sources said that after the withdrawal of the HBL, the MCB Bank was theonly one which could offer higher and attractive bids to acquire the RBS.In its Asia Operations, RBS Pakistan has the largest branch network while on thebasis of customers; it ranks number 5 in Pakistan.


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MCB is Pakistans fourth largest bank by assets having

an asset base of US$6.7 billion, and the largest by

market capitalization having a market capitalization of

US$4.1 billion. The Bank has a customer base of

approximately 4 million and a nationwide distribution

network of 1,026 branches, including 8 Islamic banking

branches, and over 300 ATMs, in a market with a

population of 160 million.

MCB is one of the leading banks of Pakistan with a

deposit base of about Rs. 280 billion and total assets of

around Rs.300 billion. Incorporated in 1947, MCB soon

earned the reputation of a solid and conservative

financial institution managed by expatriate executives.

In 1974, MCB was nationalized along with all other

private sector banks.

The Bank has a customer base of approximately 4

million, a nationwide distribution network of over1,000 branches and over 400 ATMs in the market..

During the last fifteen years, the Bank has

concentrated on growth through improving service

quality, investment in technology and people, utilizing

its extensive branch network, developing a large and

stable deposit base.


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About RBSThe Royal Bank of Scotland Group (LSE: RBS) is a British banking and

insurance holding company in which HM Treasury holds a 80.4% controllingshare, through UK Financial Investments Limited. The group is based inEdinburgh, Scotland, and is the world's largest company by assets.The group controls the Royal Bank of Scotland Plc, founded in 1727 by aRoyal Charter of King George I, the National Westminster Bank, which cantrace its lineage back to 1650, and Ulster Bank in Ireland.RBS Group is the largest banking group in Scotland, and at its earlier peakwas the second largest in the UK and Europe (fifth in stock market value)and the fifth largest in the world by market capitalization. According toForbes Global 2000, it was the tenth largest company in the world. Itsshares have a primary listing on the London Stock Exchange. The registeredhead office of the group and the UK clearing bank are located at St AndrewSquare, Edinburgh. In 2005, Queen Elizabeth II opened the bank's newhead office building in Gogarburn, Edinburgh.The RBS Group operates a wide variety of banking brands offering persona

and business banking, private banking, insurance and corporate financethroughout its operations located in Europe, North America and Asia. In theUK and Republic of Ireland, the main subsidiary companies are: The RoyaBank of Scotland; National Westminster Bank; Ulster Bank; Drummondsand Coutts & Co. In the United States, it owns Citizens Financial Group, the8th largest bank in the country. From 2004 to 2009 it was the secondlargest shareholder in the Bank of China, itself the world's fifth largest bankby market capitalization in February 2008. Insurance companies includeChurchill Insurance, Direct Line, Privilege, and NIG.The group issues banknotes in Scotland and Northern Ireland and, as of2008, Royal Bank of Scotland is the only bank in the UK.

2RBS

The Royal Bank of Scotland


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History of Royal Bank of Scotland

The Royal Bank of Scotland Group has grown from small beginnings nearly300 years ago to become one of the largest financial services groups in theworld. Our brands operate around the globe to provide banking services for

individuals, businesses and institutions. Proud of our history, we remaincommitted to innovation and service.

The successful consortium bid for ABN AMRO in 2007 has furtherstrengthened the Group's presence in Asia.

ABN AMRO has had a long history in Hong Kong, stemming from theopening of offices in 1906 by two of its largest and oldest predecessors -Nederlandsche Handel-Maatschappij (NHM) and Nederlandsch-IndischeHandelsbank (NIHB). The RBS group now has a presence in the regionthrough 180 branches in 16 countries, including Australia, China, HongKong, India, Indonesia, Japan, Korea, Malaysia, New Zealand, Pakistan,Philippines, Singapore, Taiwan, Thailand, UAE and Vietnam.

The Group serves a broad array of medium to large enterprises, including

MNCs and financial institutions, offering integrated consumer and businessbanking services such as transaction banking, risk management, investmentbanking, private banking and asset management.

Our clients across the world each have different aspirations, goals andneeds, so we work closely with them to ensure that our service is integratedand appropriate in providing solutions for their particular personal andbusiness circumstances.


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world. With an AA credit rating, RBSgroup has more than 40 million customersworldwide and total assets, as of 31December 2007, of 2.4billion. Ourbrands operate around the globe anddown your street to provide bankingservices for individuals, businesses andinstitutions. Proud of our history, we

remain committed to innovation andservice in business and through ourmany sponsorship activities.Banking sources said the MCB Bank wasmaking efforts to buy the RBS Pakistanoperations to further strengthen itsposition in the industry.

Acquisition Reasons

RBS

On 22 April 2003 RBS announced thelargest rights issue in British corporatehistory, which aimed to raise 12billion innew capital to offset a write down of5.9billion resulting from the badinvestments and to shore up its reservesfollowing the purchase of ABN AMRO.On 13 October 2008, British PrimeMinister Gordon Brown announced a UKGovernment bailout of the financial

system. The Treasury would infuse 37

billion ($64 billion, 47 billion) of newcapital into Royal Bank of Scotland GroupPlc, Lloyds TSB and HBOS Plc, to avertfinancial sector collapse. This resulted in atotal government ownership in RBS of58%.As a consequence of this rescue the chiefexecutive of the group Sir Fred Goodwinoffered his resignation, which was duly

accepted.

Pakistan is among the first Asian markets

where ABN AMRO has been re-branded as

RBS effective from August 1 as approved

by local regulators. ABN AMRO Bank(Pakistan) Ltd will now be officially

renamed as The Royal Bank of Scotland

Ltd. This follows the successful global

acquisition of ABN AMRO in October 2007

by an RBS-led consortium.

A press statement of the bank said

presently RBS was the second largest

financial services group by profit, with an

AA- credit rating with total assets of

1,900.5 billion pound sterling as ofDecember 31, 2007.

The Royal Bank of Scotland Group has

grown from small beginnings nearly 300

years ago to become the second largest

financial services group by profit in the

ABN Amro renamed to

RBS in Pakistan

The Royal Bank of Scotland (RBS) Groupformally re-branded ABN AMRObranches in Pakistan on Friday, August

1, 2008.


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In January 2009 it was announced that RBS had made a loss of 28bn of

which 20bn was due to ABN AMRO.[10] At the same time the government

converted their preference shares to ordinary shares resulting in a 70%

ownership of RBS.

The potential 28 billion loss is nearly twice the size of Vodafone's 15

billion deficit in 2006, currently the biggest-ever corporate loss in UK

history.

News of RBS's record-breaking deficit came as the government announced asecond support package for banks designed to counter recession by kick-

starting lending to businesses and consumers.

The scheme failed to reassure investors, however, and RBS shares closed

down 67 percent at 11.6 pence, having earlier slumped to 10 pence.


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MCB Interest in RBS

MCB interested in RBS's assets to gain clients from multinational companies,

its consumer banking network and a few prized branches in main cities.

The attractive element for MCB is RBS's consumer banking network as it is a

strong player in that.

Moreover, RBS is also technologically sound with quality human resource

that can add value in each of the interested banks.

However, RBS asset quality is worst amongst the three banks which means

the RBS would have to discount the price at the time of agreement.

Banking sources said the MCB Bank was making efforts to buy the RBS

Pakistan operations to further strengthen its position in the industry.

Analysts said the RBS has a sound customer base of 226,000 (by Dec 2007)

with quality infrastructure. This could earn much higher price than the deals

signed before for the sale of different banks.


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Acquisition details

MCB will initially acquire 1,707,107,891 ordinary shares from RBS Pakistan

at Rs4.22 per share - representing a 99.37 per cent stake. The total

consideration to be paid will be Rs7.2 billion (approximately $87 million). In

addition, MCB will make a tender offer for the remaining 0.63 per cent

ordinary shares, which were not owned by the majority shareholder under

the Listed Companies (Substantial Acquisitions of Voting Shares and

Takeovers) Regulations, 2008. This tender offer will also be subject to the

necessary regulatory and other approvals. MCB said it would fund the

transaction entirely through internally generated cash reserves and would

not be contingent on any external fund raising. ($1 = 82.86 rupees)

The price would be 0.76 times RBS Pakistan's book value of 9.888 billion

rupees, as of March 31. They will pay around 7.5 billion rupees ($90.4

million) for RBS Pakistan The MCB deal to buy out RBS is a continuation of a

positive trend in Pakistan. For MCB, the deal for US$87m is extremely

attractive. The market was expecting a higher value said Shuja Rizvi, a

Karachi based equity and business analyst. Remaining shares: In addition,MCB will make a tender offer for the remaining 0.63 percent of ordinary

shares not owned by the majority shareholder under the Listed Companies

(Substantial Acquisitions of Voting Shares and Takeovers) Regulations,

2008. The tender offer will also be subject to the necessary regulatory and

other approvals. The Pakistan sale is part of moves by part-nationalised RBS

to sell assets globally as it tries to exit up to 36 countries and focus on its

mainly U.K. core businesses.

The assets would help the buyer tap growth in a nation that forecasts an

economic revival for the fiscal year that started July 1 after the governmentpredicted a 3.3 per cent expansion. Pakistan's economy may expand more

than 6 per cent annually on average over the next five years, Shaukat

Tarin, adviser to Prime Minister Syed Yousaf Raza Gilani, said in March.


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Post acquisition effects

After acquiring RBS operations, MCB branch expansion nd customer base is

expected to increase and it will facilitate customers more aggressively.

As a result of the transaction, the total number of branches of combined

MCB and the acquired bank will increase to 1,139. The total consolidated

deposits will increase to Rs 413 billion and consolidated gross advances toRs 324 billion.

MCB will add more than 75 RBS Pakistan branches in 24 cities, taking its

total network to 1,139 branches.


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Acquisition is pending

On the other hand, State Bank of Pakistan has not yet granted approval to

MCB's merger with Royal Bank of Scotland (RBS), leading to a delay in

completion of the acquisition process. According to sources, the central

bank has raised objections that approval will be granted only when MCB

fulfils the requirements regarding completion of sponsor's shares. The

central bank has raised the objection over MCB's violation of clause-4 ofbanking law. Under the legal requirement, the sponsor's shares are to be

deposited at CDC. However, the experts view this requirement as

inapplicable in the transaction in question while the requirement of Central

Depository Company is also not applicable here. People also say that the

muss between a giant business group and a senior leader of the political

government has now intensified as the non-CBA staff union led by the

general secretary Karachi wing of the ruling party expanded their agitation

here Monday.

At a time when country's economy is almost at a halt, efforts are on to

discourage whatever economic activities are left with the backing of ruling

party. Some of the political and financial analysts are linking this action of

staff union with the tussle between the head of the giant business group

and a senior-level party leader. They are of the view that the pending issue

of RBS merger with MCB could also be part of this bout, while the criticism

on Kerry-Lugar Bill by Mian Muhammad Mansha could be the retaliation.

Earlier in his statement to a private TV news channel, Mian Mohammad

Mansha, Chairman Nishat Group of Companies, had said that he has

brought $1 billion to Pakistan from abroad through the private sector and

could bring $1.5 billion a year, equal to US aid in Kerry-Lugar Bill.


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Acquisition is pending(Continued from previous section)

To create hurdles in smooth functioning of the Bank, which is the significan

part of Mansha Group's business, members of the union again blocked man

of the branches Monday, despite of Sindh High Court orders in a petition

filed by the Bank. The MCB Bank management issued a press circular

Monday saying a group of outsiders is illegally interfering in the normalbusiness activities of the bank.


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THE CONCLUSION

The past few years of economical disruption had bankrupted or borderline many large

international financial institutions, the big names included Merrill Lynch, Lehman Brothers

and R.B.S.

The financial market of Pakistan was also affected with the situation, but not to the extent ofinternational financial markets.

While, with the disruption came along board some opportunities as well which were seized

by the private sector entrepreneurs. One of them is the case of acquisition of R.B.S by a local

private bank MCB.

The acquisition is largely in market interest, not only due to the good circulation of capital,

but to boost investors confidence as well. However, the acquisition is currently seem vague

for the reasons maybe latent in the way in which deals are handled in our country where

national interest get overlaps with personal gain & political approval.

The acquisition of RBS by the MCB management is still remains, because the State bank of

Pakistan has not yet granted approval to MCBs merger with Royal Bank of Scotland, leading

to a delay in completion of the acquisition process. According to sources, the central bank

has raised objections that approval will be granted only when MCB fulfills the requirement

regarding completion of sponsors shares.

Rumors says that, behind the curtains there is an political stint, which is that Mr. Zardari

against the Mian Mansha, as he is also the close aide of Mr. Nawaz Sharif, and thats been

the reason the central bank has raised the objection over MCBs for the violation of clause-4

of banking law, however, the experts view this requirement as inapplicable in the transaction

in question while the requirement of Central Depository Company is also not applicable here.

We are in sincere opinion that Government should aid such private investment opportunities

which help in the revival of our economy.


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RFEFERENCES

mcb.com.pk

rbs.com.pk

wikipedia.com/rbs,

financial times.com

www.aaj.tv/

www.geo.tv/

www.bbc.com
http://www.aaj.tv/http://www.aaj.tv/http://www.geo.tv/http://www.geo.tv/http://www.bbc.com/http://www.bbc.com/http://www.bbc.com/http://www.geo.tv/http://www.aaj.tv/

Documents

Business Finance Report on MCB ACQUIRES RBSeport Final MCB ACQUIRES RBS