Government takeover of Dubai Bank will lead to more mergers?

Dubai Government has taken over Dubai Bank with immediate effect.

The action was taken under the directions from His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of UAE, Ruler of Dubai.

According to a statement, the Government of Dubai had to takeover Dubai Bank to ensure the preservation of all of Dubai Bank’s depositors’ interests. The Government will also inject adequate capital into Dubai Bank.

The injection will effectively dilute the complete holding of Dubai Bank’s current shareholders, and consequently allow the 100 per cent takeover of the bank by the Government of Dubai. Before this acquisition Dubai Bank was jointly owned by Dubai Holding and Emaar at 70 and 30 per cent, respectively.

The Central Bank of the UAE and the Ministry of Finance have extended their support to Dubai Governments’ initiative.

The management team at Dubai Bank will not be affected by the takeover and will remain in place without any changes, the statement said.

This may further lead to a merger of Emirates Islamic Bank (EIB) and Dubai Bank. In the proposal presented to the Central Bank, EIB had put up a condition that it wouldn’t shoulder any losses suffered by Dubai Bank. EIB had then stipulated that the government should handle Dubai Bank’s losses, which it estimated could range between Dh500 million and Dh2 billion.

According to another report, Emaar Properties will fully write off its investments in Dubai Bank, valued at Dh172 million. This is to further solidifies governments takeover of Dubai Bank.