What's going on?

Abu Dhabi�s two biggest banks announced that they are merging on Sunday: National Bank of Abu Dhabi (NBAD) and First Gulf Bank (FGB) will join forces. The combined entity will be (by one important measure, at least) the biggest bank in the Middle East – and worth about $29 billion!

What does this mean?

The reason for the merger is perhaps the most interesting angle to consider: the United Arab Emirates (which is the country that Abu Dhabi is the capital of) is a big oil producer and the low oil price is forcing it to be more frugal with its money. The idea behind this deal is that by combining its two largest banks, they will become more efficient and drive greater economic value to the government (Abu Dhabi is a current big shareholder in both banks and will own 37% of the new bank).

Why should I care?

For the stock: Opposites attract. FGB is like a regular bank and has a lot of consumer-facing business (like credit cards) while NBAD is more like an investment bank (like a Goldman Sachs). The idea is that they each have different strengths that they will bring to the table. So it seems like a reasonable deal for the country: the government gets the efficiency boost from the integration (e.g. only having to pay one CEO and Board) and the strategic rationale for the deal appears to be sound.

The bigger picture: Oil-rich states are feeling the pinch. The UAE is exceptionally wealthy, but the low oil price is putting a strain on government finances. In the UAE, as in Saudi Arabia, citizens are usually given lots of benefits (like free healthcare, for example). That�s more difficult to afford in this new era of low oil prices (remember, the oil price is half of what it was in 2014). How these countries adapt, economically and politically, will be interesting to watch.