Corporate Finance: Topic: Amalgamation of HBL and Barclays
Corporate Finance: Topic: Amalgamation of HBL and Barclays
Corporate Finance: Topic: Amalgamation of HBL and Barclays
Submitted By:
Afrah Zaheer
CORPORATE
Noor Us Sabah
Shamail Malik
FINANCE
Term Report
Introduction
To HBL
Habib Bank Limited holds the title of being the first commercial bank in Pakistan. It has grown
ever since to also be Pakistan’s biggest private sector bank with the highest asset holdings
nationwide. As of 2018, the asset base of HBL is at PKR 3.00 trillion and increasing. It has 2,139
ATMs worldwide and 1,743 branches internationally spread out in 20 countries majorly in the
UK, UAE, South and Central Asia and Far East. Furthermore, it also has an astonishing 14
HBL is one of the top five banks of Pakistan. The other four being United Bank Limited (UBL),
National Bank of Pakistan (NBP), Bank Al Falah and Standard Chartered. The key area of
operations for HBL is providing offerings in the Retail and Consumer Banking sector.
Barclays
Barclays is an investment bank which originated in England and has its headquarters in London.
It offers services such as personal banking, wealth management, investment banking and
management. It ranks 18th in the list of best banks in the world. Barclays entered in Pakistan in
2007. However, ever since doing so, it suffered losses on and off. Finally, in 2013, it made a
Area of Discussion:
This report discusses the amalgamation which took place between HBL and Barclays PLC
Pakistan where the former was the transferee and the latter was the transferor. It is important to
know that whereas most of the amalgamations are part of mergers, HBL purchased and bought
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out the entire Pakistan based operations of Barclays PLC. The report will focus on three key
Pre-acquisition Conditions
Barclays started its operations in Pakistan in 2008. It established its branches in Islamabad,
Karachi and Lahore. By 2009 it had quickly grown its network to consist of 9 branches, 30
ATMs and 10 sales centers. By mid-2014, the total equity of Barclays Bank Pakistan was around
Rs7.5 billion and its total assets were valued at Rs49.9 billion. At this time, Barclays was the 28 th
largest operating bank in Pakistan. The amalgamation required the approval of the SBP State
Experts predicted that the premium for the transaction would be at a low amount compared to
high profile bank acquisitions as Barclays’ brand name will be discontinued of use after the deal.
Proposal for acquisition and the subsequent procedures for the amalgamation was approved by
the board of directors and shareholders of HBL in April of 2015. On June 1 st 2015, the state bank
Barclays faced intense competition from both international and local banks operating within
Pakistan. Its former president, Shazad Dada, had also quit Barclays to head Standard Chartered
as CEO.
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HBL was Pakistan’s largest bank at the time in 2015, a position it has still managed to uphold. It
currently has over 1750 branches, 2000 ATMs and more than 12 million customers around the
country.
Prior to Barclays’ acquisition and amalgamation, there seemed to be an ongoing trend of foreign
banks leaving Pakistan which included Citibank, HSBC, and Crédit Agricole to name a few. One
of the contributors to this trend was the fact that benchmark interest rates were falling at the time
in Pakistan and to high extents, they create an unfavorable positions for banks.
For Barclays specifically, closing down its operations in Pakistan was part of its larger
which included large multinational companies and corporate sector entities also projected an
improved balance sheet outlooks for HBL. Prior to this deal, HBL had acquired Citibank’s
During Amalgamation
The type of Amalgamation which took place between Habib Bank Limited and Barclays PLC
Pakistan was the one where the amalgamation is similar to a purchase. The transferor company,
Barclays PLC Pak, was fully acquired by the transferee company which was HBL in this case.
The amalgamation took place in accordance with Section 48 of the Banking Companies
Ordinance 1962 under “Amalgamation”. The entire process was subjected to regulation by the
State Bank of Pakistan and the Competition Commission of Pakistan. Approval by all the
shareholders at HBL was also required for it. In this process, seven Barclays branches across
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During the amalgamation process, all the customer clientele that belonged to Barclays PLC
Pakistan were shifted to and became customers to HBL. During the merger, the Net Asset Value
(NAV) belonging to Barclays PLC Pak was 7,197,874 (Rupees in '000) as at June 14, 2015.
However, the total purchase consideration which included both cash consideration and
contingent consideration was 6,650,759 (Rupees in '000). Thus, there was a gain on bargain
purchase; this gain was not recorded as a good will or in the profit and loss account. Whereas
under IFRS-3 a bargain purchase represents an economic gain which should have been
immediately recognized by HBL as income. But we notice that the amount of bargain purchase
gain was not taken to the profit and loss account as the State Bank of Pakistan, through its letter,
recommended that the amount of gain should be routed directly into equity as a Non-
distributable Capital Reserve (NCR). As the amount was undertaken as a capital reserve, HBL
decided that it would through approval by the State Bank of Pakistan distribute this amongst its
shareholders as a stock dividend. But before the distribution of the gain as a stock dividend, HBL
decided that it may adjust any subsequent provisions/deficit, assessed by the Bank or
recommended by the Banking Inspection Department of the SBP, in the acquired Pakistan
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Figure 1 Gain on bargain Purchase and its treatment as a NCR rather as income.
In the process of amalgamation, the net cash inflow on acquisition amounted to 236,259 (Rupees
in '000) and was stated under cash flow from investing activities. It is also important to mention
at this point in time that because the gain from purchase bargain was not considered to be income
and thus was not added to the profit and loss statements, the earnings per share were not affected
by the amalgamation by HBL over Barclays PLC Pak. By this it means that any increase over the
previous year in EPS didn’t occur to the acquisition process. During the amalgamation, all the
assets and liabilities previously belonging to Barclays was acquired by HBL and posted in Notes
to the financial statements on their carrying values. HBL decided at the end of the financial
period of 2015 that it will assess the values of these assets and liabilities so that if the carrying
values differ from the fair value, the values be upgraded to fair values later on.
Figure 2 Barclays Assets and Liabilities at the their Fair Value under the HBL's Notes to the Financial Statements
After the acquisition in 2015, we observe changes and improvements in the financial statements
of Habib Bank Limited. The acquisition transaction was costed at around Rs. 7 billion and
resulted in a gain of Rs. 547,115 for HBL. By the end of 2015, contingent consideration had also
However, subsequent to this acquisition, HBL has enjoyed many more benefits such as increase
in total assets, even after being Pakistan’s biggest bank in the very category, et cetera. A detailed
In 2015, HBL had crossed the Rs. 100 billion revenue bar, much like a gift to celebrating their
75th anniversary. This also further strengthened its position at being Pakistan’s top bank. HBL
also managed to maintain 80% of Barclays highly trained and professional staff alongside a
majority of their customer base who now avail HBL services. Profits rose by around 17% and the
assets on the balance sheet rose to Rs. 2,218,422,785,000 after an almost 19% where the main
increase came from investments. Consequently, the earnings per share increased by 11% to
During FY 2015-16, the goodwill of HBL also showed a quick increase of over 42% as opposed
to the prior year and stood at Rs. 2.732 billion. This was followed by an additional Rs. 250
billion in deposits and its average domestic current accounts grew by 19% over 2015 and
reduced the cost of deposits. The asset base by the end of year 2016 also stood at Rs. 2.5 trillion.
During 2015, HBL decided that non-distributional capital reserve had to be turned into stock
dividend but had not been authorized by SBP to do so. The end result of the decision is unknown
and no reports reveal what other steps were taken in place of this one or to get authorization.
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However, not all was so good during FY2016-17. In the same period as 2015-16, in FY 2016-17
the Bank earned a net profit of Rs. 34.2 billion that was 2.5% lower. And EPS decreased slightly
to Rs. 23.23 versus Rs. 23.93 in FY2015-16. Capital gains also dipped by 52% and subsequently
reduced earnings. The goodwill also took a slight hit of 0.33% during this year.
In their reports in 2016, HBL states that Barclays balances at their carrying values were
incorporated in the HBL financial statement as were shown in Barclays financial statements.
However, according to IFRS 3, these were to be carried at fair values within the span of one
year. When done so, the carrying and fair values turned out to be similar and no fair value
The year 2017 showed mixed (in essence, positive and negative) growth in different sectors of
the country. Foreign exchange reserves showed a decline of 15% and stood at USD 18.2 billion
at the end of the year, despite the fact that USD 2.5 billion of external debt was issued. Such
private sector credit increased by 15% and stood at Rs. 4.8 trillion versus Rs. 4.17 trillion during