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Breakfast Report - 17 December, 2018

The Week Ahead                                                                            

News reports at the start of the week reveal that Access Bank is set to acquire the assets of Diamond Bank, with ongoing discussions set to be completed sometime this week. The boards of both banks are said to have met yesterday to pass resolutions on an agreement to merge, subject to regulatory and shareholder approvals. We recall that Diamond Bank recently completed the process to convert to a national bank, after facing headwinds with non-performing loans and profitability stemming from challenges with lending to the indigenous oil sector following the fall in oil prices. Rumours of a merger had been reported earlier in October, with both companies flatly denying any talks were taking place. Access Bank, meanwhile, has a strong financial profile with a 20% capital adequacy ratio (as of Q3’18) and stands to become one of the largest banks in Nigeria should the merger be completed.                                        

Equity: The ASI gained 34bps on Friday, closing the week 63bps down. Despite the mildly positive close to last week, we anticipate a weak start to this week’s trading.                                                                            

Stock Watch: The boards of DIAMONDBNK and ACCESS have reached an agreement for a merger. The union is subject to regulatory and shareholder approvals. The stocks are trading at ₦0.95 and ₦7.45 respectively.                                                                             

Fixed Income: Given tightened liquidity throughout last week, the anticipated continuation of OMO auctions this week and an expected reduction in bond supply at the bond auction on Wednesday, we foresee a mixed trading session in the secondary market to start the week.