Egyptian group EFG Hermes and Qatari Islamic investment bank QInvest are in talks about a possible merger of some operations to create an investment bank covering the Arab world, Africa, Turkey and south and southeast Asia.
The venture would include securities brokerage, asset management and investment banking operations, but not EFG Hermes Private Equity, the two said on Monday.
The proposed venture could be a boost to both companies, analysts said, with QInvest's wealth complementing the experience of EFG-Hermes, whose earnings were hit hard by last year's popular uprising in its home market.
"This makes strategic sense to do and is a win-win situation for both," said Haissam Arabi, chief executive and fund manager at Gulfmena Investments. "Forming a mega investment bank is also in line with EFG's plans to become the region's largest bank."
EFG Hermes, Egypt's biggest investment bank, has a market value of $1.08bn and runs offices in nine Arab countries. It also controls a 65 percent stake in privately owned Lebanese bank Credit Libanais, which it bought in 2010 for $542m.
QInvest has a paid-up capital of $750m and offices in Qatar, Turkey and Saudi Arabia, its website says. Its shareholders include Qatar Islamic Bank, other institutional investors and high net worth individuals.
EFG Hermes shares soared 9.4 percent, outperforming Egypt's benchmark index, which closed 1.1 percent lower.
"It's probably one of the better consolidation stories that have been announced in the MENA region since the crisis," said Mohammed Yasin, former chief investment officer at CAPM Investment.
The joint statement by EFG-Hermes and QInvest gave few details on what the proposed investment bank might look like.
"We cannot comment on anything," EFG-Hermes's CEO Hassan Heikal said when contacted by telephone.
Aybek Islamov, a banking analyst with HSBC, said the two banks could generate synergies through cross-selling, client sharing and by relying on each other's expertise and goodwill in various markets.
"The main question is the amount of capital EFG Hermes will commit to the venture and the returns they can generate on it," Islamov said.
Analysts said the merger could help QInvest expand its client base outside Qatar, where low trading volumes and operating restrictions have helped slow the brokerage business.
The statement by EFG Hermes and QInvest said the two institutions would assess potential synergies and if they reached an agreement, they would announce a general framework of a joint venture and a timetable for its implementation.
"Our primary objective in these discussions will be to create an investment banking platform that will play a vital role in the flow of foreign capital into the region," while enabling Arabs to invest in the region as well, the statement quoted EFG Hermes as saying.