Q&A: Freddie Baz

The emergence of Audi-Saradar Group sets a new benchmark in Lebanese banking. EXECUTIVE talked to Freddie Baz, advisor to the chairman of Banque Audi, about the evolution, goals and spirit behind the move

How long were the two banks involved in negotiations before signing the agreement to form a single group?

The two banks have had a long proactive relationship. Every now and then we sat together on the managerial level and assessed the situation of the banking industry in Lebanon and the consolidation process. In this favorable environment, more direct talks started two to three months ago but as one issue among several in our meetings. After negotiations started in serious, the whole process didn’t take more than one month.

Then it was a smooth procedure?

It was a very smooth procedure. The two parties are really open minded and not driven by any subjective considerations, which normally present an important obstacle for merger operations. There was never any ego dimension. Issues came up in a healthy way and never generated emotional attitudes or structural obstacles.

Will you form a group of banks or a single bank?

When Banque Audi becomes the sole shareholder of Saradar, Saradar shareholders will change part of their shares into Audi shares, and therefore will become shareholders of Banque Audi. We call the new entity that is emerging, the Audi-Saradar group, which, however, is not a legal concept. From an accounting standpoint, Banque Audi is the holding company where all the accounts of all the subsidiaries will be consolidated.

Under perspective of management culture and operational environment, would you describe the deal more as a merger or more as an acquisition?

In a merger, one institution absorbs another institution, which is not the case here. Both banks are keeping their legal status. As Banque Audi is paying partly in cash and partly in new Audi shares to be issued exclusively to Saradar shareholders, you can consider the cash configuration as an acquisition and the share configuration as a merger. But the spirit of the negotiations was the most important element, and the spirit was the spirit of a rapprochement of two banking groups into one mega group, which is Audi-Saradar. It is really a rapprochement between two banks, creating huge synergies at different levels: human, managerial, franchises, commercial, financial and so forth.

Is the absence of the merger law going to affect the process?

The scheme that I was describing by definition does not get any benefits from the merger law. Even if the law were in place, we would not have been granted any soft loan, because both entities are still operating and no license will be given back to the central bank.

Was size ever a consideration in the discussions?

Size has never been a target for us. Banque Audi’s target has always been to be among the best banks in Lebanon, not the biggest bank of Lebanon. However, when you reach the high quality level, which we believe we have reached over the last three years, your customer base obviously expands, and size follows.

Is your key strategic aim domestic or regional?

Both are related. You cannot expand beyond your national boundaries if you haven’t reached a mass in the domestic market. It is surprising that a country like Lebanon, which has developed its banking industry to 3.5 times the level of GDP, couldn’t build private entities with a size that would allow them to compete with regional banks. If two, three or four major banking groups in Lebanon materialize, and if each of those banks have a size similar to the top two or three in some countries in the region, we have a lot of chances to gain market shares in those markets.

Will financial firm Lebanon Invest be taken out of the market?

Who said that? By definition, if a merger or acquisition results in having three of four insurance companies or investment companies, the healthiest solution is to consolidate internally. But for the time being I cannot say that we have decided to liquidate this or merge that. Without going more into specifics, I can say we are in the process of reassessing all subsidiaries in order to generate the highest financial synergies.

But is it correct to say that Saradar Investment House will be absorbed into Audi Investment Bank?

If you believe in internal consolidation, by definition you have to consider it internally. For the time being there are no schemes at all for any of those entities. Starting with the signatures under the merger-acquisition agreement, we are becoming one entity. In each single entity, the best people have to manage the business, and in each subsidiary, the best people will get the responsibilities warranted by their expertise. I do not comment on these issues now because the steering committee has been assigned. It will assess the real values in each business. There are no preset positions.

How long do you estimate the steering committee to have to work on these assessments?

The committee’s role is to ensure the rapprochement’s best and optimal conditions to assure the interests of the new shareholders, which represent the old shareholders of both entities. It is a matter of not just assessing material things. In view of our size, it should take a minimum of two months or perhaps three.

In any merger, people in the involved companies have concerns over their jobs. Did you discuss any redundancies?

No. Since these entities will operate under their actual status, there is definitely room for all the people working for the group. The business synergies resulting from the rapprochement will probably create need for further jobs in the group.

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