x Abu Dhabi, UAETuesday 23 January 2018

EFG-Hermes stock rises after Federal Reserve easing

Egyptian bank's shares continue to rise on Fed's quantitative easing measures and on news that Lebanese bank deal nears.

Shares of the Egyptian investment bank EFG-Hermes continued to rise yesterday as analysts anticipated it may finalise its acquisition of a Lebanese bank before the end of the year.

The bank is also expected to benefit from the US Federal Reserve's quantitative easing announced Wednesday.

The stock has rallied by more than 3 per cent since Wednesday as brokers speculated that its acquisition of the Lebanese bank Credit Libanais (CL) appears closer to completion.

"We still expect closing in [the fourth quarter]. The stock price has also recently been helped by investors anticipating improving financial markets," said Jaap Meijer, an analyst at HC Securities and Investment, based in Dubai. EFG-Hermes offered to pay US$542 million for a controlling stake in the Lebanese lender as part of an effort to turn itself into a regional bank with a diversified platform. Credit Libanais has not yet announced a response, nor has Lebanon's central bank.

If the deal goes through, EFG-Hermes is expected to benefit from exposure to the retail and corporate lending sectors in Lebanon, units that are less volatile than brokerage and asset management.

"The acquisition of CL will add to the stability of the reported results," Mr Meijer said. "They will also use the CL network as distribution network, although the initial revenue synergies are limited, in our view." It also appears likely that EFG-Hermes will help Credit Libanais expand into other regional markets, as it did when it acquired Banque Audi. EFG-Hermes will still have plenty of surplus capital after the deal - about 4.4bn Egyptian pounds.

EFG-Hermes will also benefit from increased capital inflows into the region after the Fed's quantitative easing, said Mr Meijer. This has been happening over the past two months but EFG should continue to profit from improved volumes in equity markets and an increase in investment banking activities.

The bank is already slated to earn sizeable fees from Electrolux's pending acquisition of the Egyptian household appliance maker Olympic Group, a deal that is expected to be closed this quarter or early next year.