Malaysia's US$20b bank merger set to collapse: sources

[KUALA LUMPUR] A US$20 billion merger to create Malaysia's biggest bank is about to collapse after CIMB Holdings and RHB Capital failed to agree on new deal terms, people familiar with the matter said on Tuesday.

The merger of CIMB, RHB and Malaysian Building Society Bhd (MBSB) would have formed a banking group with assets of about US$190 billion, eclipsing Malayan Banking Bhd (Maybank) and making it southeast Asia's fourth-biggest bank.

The state-backed deal was part of Malaysia's ambitious plan to promote its firms as regional champions.

The collapse of the deal would be a major blow for CIMB Chairman Nazir Razak, brother of Malaysian Prime Minister Najib Razak.

Mr Nazir has spearheaded the bank's expansion over the past 16 years, snapping up a domestic rival, lenders in Indonesia and Thailand and businesses owned by Royal Bank of Scotland.

All three firms said in separate stock market filings late on Tuesday that talks were ongoing. CIMB and MBSB said they would have board meetings on Wednesday to discuss the merger.

"Should there be any material development on the proposed merger which warrants disclosure, the appropriate announcement will be made on Bursa Securities accordingly," CIMB said.

However, two people familiar with the matter said an announcement cancelling the deal could come as early as Wednesday evening, after the CIMB board meeting.

CIMB shares had tumbled more than 26 per cent between the launch of the deal in early October and Monday, as investors questioned CIMB's ability to extract synergies from the deal.

"We have been cautious on the mega-merger proposal, especially on synergy creation vis-a-vis the high merger cost," Tan Ei Leen, analyst with Kuala Lumpur-based Affin Hwang Capital, wrote in a note to clients on Monday.

The CIMB share price fall reduced the deal's appeal, prompting RHB to seek an improved share swap ratio, and possibly cash, people familiar the with the situation said. A central bank directive against CIMB cutting jobs for 24 months after the merger also posed difficulties.

On Tuesday, CIMB shares climbed 14.3 per cent as investors breathed a sigh of relief that the deal appeared finished. RHB gained 0.9 per cent, while MBSB fell 5.9 per cent. Malaysia's benchmark share index was up 0.8 per cent.

A failed merger could raise concerns about Malaysian bank governance after state investor 1Malaysia Development Bhd (1MBD) missed the repayment of a RM2 billion (US$563 million) bridge loan that was due end-December.

The bank troubles come as Malaysia's economy faces sharp falls in oil-related revenue, prompting Bank of America Merrill Lynch economists to warn last month the government might be forced to cut its gross domestic product growth forecast for 2015 to 4.6 per cent from 5 per cent in 2015.

REUTERS