Malaysia's 4th largest bank RHB Bank to start merger talks with No. 6 AmBank

RHB Bank is set to start merger talks with AMMB Holdings (AmBank).
RHB Bank is set to start merger talks with AMMB Holdings (AmBank). PHOTO: REUTERS

KUALA LUMPUR (REUTERS) - Malaysia's RHB Bank and AMMB Holdings (AmBank) said they will begin merger talks, in what could be the country's biggest banking deal and create a group worth about US$9 billion (S$12.4 billion) at current prices.

The banks have received the nod from the Malaysian central bank to commence the merger negotiations, they said in a joint statement on Thursday (June 1). The transaction is expected to be an all-share deal and the two banks have until Aug 30 to exclusively discuss a deal, they said.

The potential merger would reinforce RHB's ranking as the fourth largest Malaysian bank by assets behind Maybank, CIMB Group Holdings and Public Bank. AmBank is currently the country's sixth biggest bank.

Source told Reuters on Wednesday that RHB would be the acquirer in the potential merger. AmBank has a market capitalisation of US$3.66 billion while RHB has a market value of about US$5 billion.

A full takeover at those price levels by RHB would put it above the 2006 acquisition of Southern Bank by Bumiputra-Commerce Holdings for US$1.74 billion, making it the biggest Malaysian banking deal, according to Thomson Reuters data.

Bumiputra-Commerce eventually became the current CIMB Group after a series of mergers and a rebranding exercise. Trading in shares of RHB and AmBank were suspended, ahead of the announcement.

In a research note ahead of the merger announcement, UOB Kay Hian analyst Keith Wee Teck Keong said RHB's shares are likely to react negatively to the announcement as the revenue synergies between the two groups are not compelling. "We opine that such a merger would require a fair degree of cost rationalisation given the degree of operational and revenue duplication between AMMB and RHB," he said.

ANZ Banking Group, which owns a 24 per cent stake in AmBank, has been weighing a sale of its stake since early last year, partly due to AmBank's involvement in a political scandal linked to state fund 1Malaysia Development Berhad (1MDB) and Prime Minister Najib Razak, sources have said.

Datuk Seri Najib has been buffeted by allegations of graft and financial mismanagement at 1MDB and in particular by revelations of the transfer of hundreds of millions of dollars into his AmBank accounts in 2013.

Mr Najib has denied any wrongdoing and said he did not take any money for personal gain. 1MDB is the subject of money laundering investigations in at least six countries, including the United States, Singapore and Switzerland. In 2015, AmBank was slapped with an RM53.7 million (S$17 million)  fine by the Malaysian central bank for breaching certain financial regulations.