Abu Dhabi Financial Group to acquire FGB brokerage unit

Latest mergers and acquisitions deal in a flurry of financial transactions and consolidation in the sector.

FGB plans to sell its 45 per cent stake in a brokerage to Abu Dhabi Financial Group (ADFG).

A unit of ADFG, Integrated Financial Group, has signed an agreement to buy the FGB’s 45 per cent stake in First Gulf Financial Services (FGFS). FGB company did not disclose who holds the remaining shareholding or the value of the sale.

ADFG is a multibillion-dollar alternative investment firm. It also owns Abu Dhabi Capital Management, which hived off its hedge fund Qannas Investments on London’s AIM market in 2012.

“The agreement follows a plan, which FGB has recently undertaken to increase its focus on its core banking activities locally and overseas,” the bank said.

“The transaction will have no impact on FGB customers, who will continue to benefit from the same high-quality advice and depth of services provided by an unchanged team of brokers and dedicated financial services professionals.”

The development comes amid a bull market rally this year. Abu Dhabi stocks have advanced 13.7 per cent so far this year, while Dubai stocks have jumped 33.3 per cent in the same period. But competition is rife for the 48 brokerage houses operating on the UAE’s onshore bourses.

Trading commissions, the bread and butter of brokerages, surged to Dh309.2 million in the second quarter of this year from Dh101.5m a year earlier.

There are 48 equity brokerages operating in the UAE, down from 110 in 2010, according to the website of the market regulator the Securities and Commodities Authority.

FGFS was founded in 2001 and trades stocks on both the Abu Dhabi Securities Exchange and Dubai Financial Market. It reported a total comprehensive income of Dh1.64m in the second quarter, down from Dh3.14m in the same period last year, according to statements posted on the regulator’s website. FGFS was ranked 33 out of 48 brokerage houses by traded value last month and held market share of 0.42 per cent on the DFM. It traded Dh213,416,300 worth of shares last month.

“I don’t know if it’s the right time to buy a brokerage because there’s a high market concentration right now,” said Fathi Ben Grira, the chief executive at Abu Dhabi-based Mena Corp.

In August Mena Corp signed a deal with Aafaq to offer financing to clients rather than assume the costs of leverage and risk management. It was ranked No 1 by traded value on the DFM last month, with an 8.9 per cent market share, trading Dh4.54 billion worth of stocks.

“The top 10 companies control 75 per cent of the traded value on ADX and about 65 per cent on DFM so the barriers to entry and coming in as a new player are quite high – and they’re investing and expanding,” said Mr Ben Grira.

Brokers agreed that the deal was good for FGB as banks can provide equity trading services without undertaking the investment and cost of running and managing a brokerage house.

It’s much more economic and efficient to become “the link rather than provide direct access”, Mr Ben Grira said.

“Many banks held on to the brokerage houses in the past as a way to ensure you can keep the shares as collateral when they give leverage to clients,” said Mohammed Ali Yasin, the managing director at NBAD’s brokerage arm.

Earlier this year the market regulator limited the ability of banks to lend to brokerage clients.

“FGB probably thought it was a business they don’t see long term viability or benefit, despite the fact that they talked about getting into investment banking a year and a half ago and brokerage would have been a part of that,” said Mr Yasin.

In September, Al Jazeera Financial Services was acquired by Mawarid Finance Group. The brokerage was subsequently renamed Mawarid Securities. Al Jazeera last month was ranked 29 out of 48 brokerage firms on the DFM by traded value. The company traded Dh328,647,413 worth of shares that month.

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