Investors deserted Union National Bank (UNB) yesterday after it reported the worst quarter of earnings since the onset of the global financial crisis.
The bank reported earnings of Dh134.87 million for the fourth quarter, a 26.2 per cent decrease on the same period a year earlier. The profit was the bank's lowest since the fourth quarter of 2008.
"UNB's results came as a disappointment, varying from our expectations due to higher-than-anticipated provisions," said Naveed Ahmed, a financial analyst at Global Investment House, in a research note.
Markets told the same story, with the bank's stock shedding 6.6 per cent to close at Dh2.96. The fall was the biggest intraday decline for the shares since December 2009.
High provisions on bad debts were to blame for the poor performance, with a 65.8 per cent increase in loan loss provisions to Dh783.3m.
"The increase in non-performing loans and advances in the fourth quarter of 2011 was due to the classification of the bank's exposures to some entities that are part of the Dubai Holding Group and certain other credit exposures," the bank said in a statement.
The bank is among the creditors of Dubai Group, a Dubai Holding unit that is currently attempting to restructure $10bn in debts. Reuters, citing two unidentified sources, reported last week that the emirate's Government had walked away from negotiations.
It may be that UNB is following the example of Emirates NBD and throwing out all of its bad news at once. The UAE's biggest bank made provisions of Dh950m alongside its third-quarter earnings to cover its Dh4.7bn exposure to Dubai Group.
If so, that would position UNB for a stronger-than-expected year, Mr Ahmed said. "Provisions relating to Dubai Holding were expected in 2012, an early realisation of which does raise our hopes for better than previously anticipated profits for 2012," he said.
However, that assumption leaves investors in UNB hoping that no further complications are to come amid Dubai Group's restructuring talks.
In the meantime, bigger dividends can be found elsewhere, with the bank's proposed cash dividend of 15 per cent the lowest announced by any of Abu Dhabi's big lenders.