all the details are included in the document uploaded if you have any questions please let me know.

marketing multi-part question and need an explanation and answer to help me learn. all the details are included in the document uploaded if you have any questions please let me know. Requirements: complete Guidelines for Case Analysis 6th Ed Undergraduate Overall Guidelines Organization Break the analysis into the following major headings: Introduction & Strategic Issue 1-2 pages External Analysis 3+ pages Company Situation 3+ pages Recommendations 2-3 pages Appendix Ratios, Industry Analysis, Five Forces Analysis, SWOT, Strategic Group Map, etc. In addition, use the subheadings described in this document to break up long sections. Style & Late Case Assignments Use APA style which means double space throughout—do not add any additional space between paragraphs. Be sure to indent the first word of each new paragraph. Do not have long paragraphs containing a variety of related but different topics—break into smaller paragraphs for organization and ease of reading. Use a topic sentence to clarify the purpose of each paragraph. Number the pages starting with the Introduction , e.g., do not include the title page. Proof! Check your work and correct the spelling and grammar errors. Write clearly with correctly structured complete sentences. The ability to present an effective case analysis depends on your critical thinking skills AND your ability to express your ideas in writing. Students who turn in a “first draft” may not earn a grade that is desired. When sections are returned to you, note all comments from the instructor and take notes in the class discussion to incorporate into your next case analysis. Start each of the major sections with an introduction that briefly characterizes and sets the stage for the section. Also at the end of each significant section, summarize with a paragraph capturing the key strategic findings of your analysis for that section. Do not make comments like “The case did not provide information on . . .” You do not need to site the textbook or case. Eliminate personal pronouns such as I, we, etc. Staple or clip the paper in the upper left-hand corner—no binders, please and bring a hard copy to class to turn in. Cases are penalized one letter grade a day for being late. Upload a copy to BB by 5 pm of the day the case is due. Put your name and student id on the first page of the case. Common Errors Being late. Omitting a section that is specified in these guidelines or requested in class by oral instruction. Not listening in class or participating in the class assignments and exercises. Not following instructions and going to the internet for information about the case. Not proofreading—you will probably improve a letter grade by proofing the case before turning it in. Waiting until the night before the assignment is due. You may very well have a legitimate emergency the night before the assignment is due. However, we begin working in class on the assignment at least a week before it is due, so you should aim to have the assignment ready before the due date/time. Show Impact Your job is not to “spill back” the facts from the case. Assume that the person who reads your write up will have read the case carefully. Support your statements of analysis with brief examples from the case information. Your focus should be on the impact, effect, and strategic implications of your analysis. Do not overlook exhibits in the case with additional data. Apply Tools and Vocabulary Demonstrate that you understand and can effectively apply the tools of strategic analysis: macro environment, driving forces, key success factors, industry analysis, financial analysis, SWOT, strategic group map and the nine cell industry attractiveness, competitive strength matrix. An effective case analysis effectively incorporates the language of strategic analysis throughout. YOU WILL INCREASE YOUR GRADE A FULL LETTER BY PARAPHRASING THE APPROPRIATE SECTIONS OF THE TEXTBOOK, WRITTEN GUIDELINES AND CASE. Unless specifically requested, do not go to the internet to get information to write the case. Major Sections Introduction Provide a brief overview of the mission, business, markets, products (services) and scope of operations the company is in. The past/current strategic direction of the firm can be briefly summarized but the focus should be on the most recent events that will impact the decisions and future direction of the firm. Identify past strategic actions by the generic strategy. This is NOT a long historical view. It shows how capable you are of describing the company’s business and current strategy using strategic vocabulary. Common Errors Focusing on history rather than the current situation. Not using strategic vocabulary for strategies. Giving too much detail about the case—assume I’ve read the case. Strategic Issue In one or two paragraphs, summarize the company and strategic situation. This should characterize the fundamental state of affairs that exists in the focus company and industry with enough background information to understand it. See page 80 & 81 (5th edition p 85) in the textbook for a definition of strategic issue and review page 9 for the tests of a winning strategy. This section MUST summarize the strategic situation the company faces. “Situation” means “state of affairs.” Summarize and connect to the key findings of each section. Weave these findings into a summary story leading to a clear and specific statement about the future prospects for strategic success for the company. Make a specific statement about whether the company’s prospects are good, indefinite, or poor. The strategic issue must be a single, well-crafted sentence that captures the fundamental problems and concerns that came out of the analysis. This single sentence must be formed as a question and will end with a question mark. Write this in very specific terms addressing both the company’s short-term situation and the broader strategic situation. Incorporate the need to provide shareholder value, sales growth, profitability and sustained competitive advantage but incorporate the specific challenges with which the focus company must deal. Everything prior to this question is headed toward this one culminating formulation of the problem. This question forms the basis for the recommendations. Do not make recommendations in this section. For example, a strategic issue for ZU could be “What degree programs should be offered to meet the labor needs of the UAE government? This can be followed up with more specific questions such as: Should ZU offer degrees in engineering or medicine? How can ZU differentiate their brand from other universities? What degrees are desired by prospective students? What degree programs are needed that are not offered by other universities? What programs need to be in place so that students are prepared better for higher education? Common Errors Failure to introduce the key conditions or “givens” in a problem statement. Addressing only the external or the internal situation rather than both. Not addressing the major, strategic challenges that may significantly affect the company. Making recommendations. External Environment Provide an introduction that characterizes the essence of the external environment and industry situation at the time of the case and sets the stage for the analysis that follows. ALL the discussion in this section relates to the INDUSTRY, not the focus company. You may use examples of the focus company or other competitors to justify your analysis. Common Errors Writing about historical events rather than the current state of the industry. Identifying the topics you are about to discuss without discussing the state of the industry. Not using the vocabulary and discussion in the textbook supported with facts from the case. Porter’s 5 Forces Analysis. Use the Porter model to evaluate the strength of the five forces that affect the strategic choices of all firms in the industry. Discuss the balance of power in the industry. Relatively weak forces (low threats) place power in the hands of the firms that comprise the industry, and, therefore, broaden their freedom of choice of strategic actions. Relatively strong forces (high threats) reduce the power of the industry firms and limit their strategic choices. An industry with strong forces tends to be less attractive than an industry with weak forces. Specifically state your assessment of the strength of each of the 5 forces—intense, strong, moderate or weak. Justify and show why you reached your conclusion. For example, it is not enough to write, “Competitive rivalry is strong because the number of competitors is high, barriers to entry are low and product differentiation is low.” A better explanation is, “The many competitors in this industry must aggressively battle for market share in this slow-growth market. They each have considerable investments in the physical plant, which makes it difficult to leave the industry. The products are difficult to distinguish from one another, so companies must focus on aggressive, marketing programs to win customers away from their competitors. All these factors contribute to a strong rivalry and continued downward pressure on profit margins.” Put the actual diagram of the model in the APPENDIX and discuss each force in the body of this section. Include a closing paragraph on the implications of the analysis to the overall attractiveness of the industry and the potential for companies to be profitable. Common Errors Not identifying the strength of a force or the conditions that lead you to your finding of a force as being strong or weak. Getting supplier, firm and buyer mixed up. Overlooking key factors you previously identified in the external/industry analysis. Not recognizing the strength of competitive rivalry. Key Success Factors Key success factors affect industry players’ ability to be competitive and successful. They are so important that firms must consider them in developing their strategy or risk significant loss of sales, profits, market standing, etc. Develop three key success factors for the focus industry and identify WHAT they are, WHY they are key success factors, and HOW they affect the industry. Finish each key success factor by discussing the strategic implication. For example, it is not enough to say, “Distribution capabilities are essential for success in the online order fulfillment industry.” Go on to say why and present a convincing argument for your position. To illustrate, “A web site that is appealing and easy to navigate, coupled with fast order delivery is essential to customer satisfaction in internet selling. Today’s consumer, especially the younger consumer, is technically savvy and has a myriad of ways to access internet sales, e.g., ipads, computers, iphones. Brick and mortar retail stores provide buyers with a quick solution for their shopping needs but are not as convenient. In order to be competitive, companies must develop the ability to respond with fast delivery times or potentially lose sales to competitors who are able to provide high levels of customer service.” Common Errors Being too general. Not specifically identifying why the factor force is important. Failure to convince why the factor is important. Not discussing the strategic implication. Industry Profile and Attractiveness. Summarize the characteristics of the industry. Draw together all of the key findings from each area of the external analysis. What conclusions can you draw about the nature of the industry? How attractive is it to its current incumbents? What are the future prospects for the industry? Why? What challenges does the industry face? Provide a summary statement about whether it is highly attractive, moderately attractive, etc., to current players re profits, sales and competitive intensity. Company Situation Provide an introduction that characterizes the essence of the company situation and sets the stage for the analysis that follows. Calculate the past sales growth rate for the company if there is historical data. If the case has data on historical industry sales, calculate the sales growth rate and determine whether the industry is in the introduction, growth, maturity or decline phase of their life cycle. If there is information such as the revenue of the top 3 competitors for the last few years, combine their sales and calculate the change in sales growth to infer where the industry is in their life cycle. Then discuss this analysis in any of the sections where it is appropriate. Based on the conclusions from the preceding section and the case analysis, determine the stage of the industry life cycle (introduction, growth, maturity or decline). Identify the key company-specific issues with which the companies are dealing. Financial Analysis. Be sure to distinctly address each of the four areas of financial analysis—profitability, liquidity, leverage and activity—identify each in the topical sentence for that paragraph. See pages 231-232 for the formulas and definitions of the ratios. The financial analysis must be thorough and accurate. Look at trends and compare the company’s performance to industry targets, if available. Evaluate the primary financial indicators, provide supporting data and interpret them to show how they affect the company regarding its present and future strategic performance. Put the calculations of the ratios in a table in the APPENDIX. Close this analysis by writing a paragraph that draws conclusion about the company’s overall financial situation, prospects and the impact of its financial condition on its potential strategic plans. The fundamental question you are trying to answer is, “What is the overall financial status of the company now, and what does its current financial status mean for its future strategic success or ability to grow sales?” Common Errors Incorrect computation of the ratio. Incomplete computations of the ratios (trends, etc.). Focusing on the definition rather than the strategic impact that the ratio implies. SWOT Analysis. Discuss each of the four legs of the SWOT fully—strengths, weaknesses, opportunities and threats in this section. Be clear that events are not the same as attributes. SWOT is about attributes, not events. An attribute describes the characteristics of the company. For example, you might say, “The company isn’t profitable.” True, but what is its weakness attribute? What characteristics of the company drives its lack of profitability? A better way to express it is, “The company has not managed costs in its value chain. This is supported by the sustained increase in cost of goods sold accompanied by flat sales reflecting a weakness that must be overcome to improve profitability.” Summarize the SWOT analysis in a one-page table and place in the APPENDIX. Discuss the table in the body of the paper. SWOT is the “integrator” of the analysis. SWOT draws from the findings resulting from the Macroenvironment, Industry Analysis, and Financial Analysis. No new information is provided. Use the terminology in the previous sections. For example, “An opportunity identified in the discussion of the competitive analysis . . .” Another example, “The dumping of foreign products into this industry, identified earlier as a driving force, is a significant threat to incumbents.” Common Errors Not linking the findings to the previous analysis through the use of common terminology. Omitting important findings discussed previously. Focusing on historical events rather than inherent strengths and weaknesses. Not recognizing obvious strengths and weaknesses in the business functions: financial analysis, marketing (product, price, place and promotion), human resource management, operations, etc. Recommendations Strategic Issue. This is the same question that is presented at the end of Section 2. Strategy Recommendations. Identify the GENERIC and functional strategy recommendations. These will tie closely to the SWOT analysis. The recommendations should play into the company’s strengths and opportunities. They should minimize the company weaknesses and overcome its threats. Discuss each strategic initiative in detail including the actions required in the functional areas to support the strategic recommendations: marketing, operations, human resource management, finance, etc. Objectives. Specify the performance objectives that should be monitored and result from the strategic recommendations and earlier analysis. What key performance indicators should be reported and what are the appropriate targets? For example, what are the sales and profitability goals? What goals should be established for nonfinancial indicators? Strategic Justification. Justify why your recommendations are the best option and why other options are not. This is a comparative analysis. Develop this fully, tying it back to the various factors in your strategic analysis. Evaluate the pros and cons of the recommended direction. Demonstrate that you understand the implications of your recommendations. A justification analysis weights the strength of the pros and cons for a given alternative in comparison to the other alternatives. It presents a rationale for why the pros of the recommended alternatives are better than the pros of the other alternatives. It also addressed why the cons of the recommended alternatives are less significant the those of the rejected alternatives. Common Errors Not naming and discussing a generic and several supporting functional strategies Developing recommendations that don’t tie clearly to the previous analysis. Not describing distinguishing characteristics of the strategies. Not aligning strategy recommendations with objectives. Writing in generalities rather than company and situation specific. Not describing strategies for all the relevant functions, e.g., human resource management, finance, etc. The FAB Merger: Developing Competitive, Sustainable Strategies for a Multinational Bank that Integrates Technology and Innovation as Driving Forces Laura L. Matherly College of Business, Zayed University Fatima Al Ali College of Business, Zayed University Shamma Sultan Khalifa Al Nehayan ABSTRACT The oil-rich region of Middle East gulf states is one of the fastest growing markets in the financial sector industry. This paper addresses the changing economic landscape of the banking industry and the response of banks in the United Arab Emirates (UAE). The most powerful global driving forces that are altering competitive dynamics include technological change, younger and better educated populations and the resultant shift in buyer preferences and lifestyles for innovative, better products. The performance of the UAE banking industry in general and the megamerger between First Gulf Bank (FGB) and National Bank of Abu Dhabi (NBAD) that created First Abu Dhabi Bank (FAB), in particular, is discussed with an eye to how the banks are adapting to maintain a strong banking sector best positioned to serve the growing demands of the region. Bank strategies are analyzed with a focus on the management practices and key success factors that are required to succeed in international banking. A major premise of this case is that technology combined with innovation and risk management functions are essential in the financial services industry. This study adds to the growing body of knowledge about effective management practices in the region. Keywords: Banking industry, merger, technology, innovation, and performance management INTRODUCTION Mergers, especially of large organizations, have been studied extensively in the banking industry in the US, and Europe and Asia (Weiß, Neumann, & Bostandzic, 2014) as they have the potential to significantly restructure the competition and economic performance of industry incumbents. In developed countries, mega banks dominate banking markets (Fraisse, Hombert, & Lè, 2018). The motives behind large bank consolidations include stability through economies of scale, risk diversification, managerial efficiency, and synergy and growth through diversification of the bank’s assets and product portfolio. For example, mergers that result in broader loan diversification, e.g., loans for commercial real estate, construction/industry, residential, consumer, and agriculture, have been found to improve financial stability in concentrated markets (Shim, 2019). Devos, Krishnamurthy, and Narayanan (2016) examined megamergers over a three-decade period and concluded that some mergers resulted in gains from cost efficiencies while mergers that resulted in geographic overlap led to increased market power. Moreover, reshuffling assets by exchanging stock can result in easier access to credit, lower financing costs and risk diversification. In general, mergers are thought to create value for shareholders as evidenced by increased stock purchases and prices after the announcement of a new merger. Formed in 1981 in Abu Dhabi, the Gulf Cooperation Council (GCC) is comprised of six nations--Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates--that are strategically located on the largest proven oil reserves in the world. The GCC has one of the world’s fastest growing banking and capital markets (PwC Middle East, 2019). These countries have pursued major economic initiatives with the goal of diversifying from an economy dependent on natural resources to one that is fueled by innovation and knowledge (World Bank, 2010). Capital markets play a critical role in the efficient allocation of savings into productive investments and the financial sector is expected to provide the investments needed to accelerate major transformations in economic growth and development. Oil is a commodity export from the region. In brief, the reliance on hydrocarbon resources leads to economic growth and credit booms when oil prices are increasing but contributes to systemic risk and financial shocks when prices fall. The International Monetary Fund (2013) reported that the impact of the 2003-2008 oil price boom initially led to Gross Domestic Product (GDP) growth, followed by a corresponding increase in the demand for credit from the private sector primarily for real estate and construction, which in turn fueled credit growth, inflation and ultimately an increase in asset prices. When this period of prosperity ended abruptly in late 2008, stock and real estate markets fell, asset prices fell, and credit defaults loomed. The subsequent financial crisis was further exacerbated by changes in exchange rates. Even though GCC countries are diversifying into sectors other than oil, banks face concentration risks in their credit portfolios for which they must hold sufficient buffer capital (International Monetary Fund, 2014). Concentration risk stems from several sources that generally relate to the dependence of these economies on oil. Credit portfolios are linked with government expenditures because the sectors to which the banks lend are dependent on government spending which in turn is influenced by oil revenues. Therefore, the benefits that ordinarily accrue from diversification in lending do not materialize in these economies because of the interconnectedness between the oil and nonoil sectors. Nonetheless, the GCC weathered the global financial crisis well and continued to become more integrated into the global economy due to the importance of oil and gas to world trade as well as the region’s ambitious economic objectives (World Bank, 2010). In 2014, banks in the GCC were liquid, well capitalized, and more profitable. Net profit grew in 2013 and the majority of the banks maintained strong levels of liquidity and improved loan asset quality due to a decrease in nonperforming loans. Economies in the region were expected to continue to expand. Since 2015, however, the GDP of GCC countries has been declining. Coupled with an uncertain political environment, profitability and growth can be affected, e.g., with a rise in nonperforming loans. Historically, when economies contract, bank mergers may occur to take advantage of economies of scale or growth opportunities. In 2017, the largest mega-deal of all time in the Middle East (ME) region occurred between NBAD and FGB creating FAB (Gencoglu, 2016) valued at over $175 billion in assets. The next three sections examine trends in the banking industry at three levels: global, regional (GCC), and local (UAE). On a global scale, technological change and internet growth are aligned with research on bank channels and customer satisfaction to address how banking strategies can respond to create a competitive advantage. The next section examines the demographics in the GCC region and the important impact fluctuations in the oil and gas sector have on bank ratings and competitiveness. This is followed by a review of industry trends in the UAE. The fourth, final section addresses the megamerger that created FAB and provides an overview of the strategies, merger and detailed financial performance of NBAD, FGB and the newly formed FAB. GLOBAL BANKING TRENDS The world economy is undergoing significant shifts that affect the banking industry. The global financial crisis and the ensuing developments heightened the role of transparency and regulation in the banking markets. In the post crisis period, many banks focused on recovering outstanding loans, acquiring new customers to build financial assets, reducing risk, meeting regulatory requirements and diversifying revenues. A decade after the crisis, industry analysis shows that despite regulation that increased capital requirements and strengthened asset-to-equity ratios, the global banking sector was still weaker than it was before the crisis (World Economic Forum, 2017). Financial stability and a strong banking sector are essential for economic growth, and investments in infrastructure and technology are vital for innovation. Important driving forces discussed in this section include technological changes and internet growth and the ensuing impact on an increasingly sophisticated consumer demand for digital banking services. Technologies are challenging traditional banking business models and how banks interact with customers. A driving force in the external environment is the pace of technological change which comprises new technologies that change how and what products and services are in demand. New competitors are emerging from internet companies, e.g., Google, Amazon and Facebook, hardware companies such as Apple’s iCloud, along with other web-based financial service providers. Digital banking is an important trend but modern branches with the latest technologies and innovations are also important brand ambassadors for private and wealth banking. Enormous untapped opportunities exist in banking to identify and integrate data across channels that will transform the status quo, improve productivity and risk management and increase customer satisfaction and revenues (Giridhar, Notestein, Ramamurthy & Wagle, 2011, McKinsey, 2011). Most financial institutions are using information to develop new offerings or strengthen relationships with employees, partners, customers and suppliers. To illustrate the importance of leveraging technology innovations with products, consider the challenge from “robo-advisors” who are new entrants to the industry competing for customers’ traditional savings at banks by automating and improving accessibility to sophisticated financial advisory functions, i.e., investment management. The banking habits of consumers are changing. In financial services, the accelerating pace of change due to new technologies provides significant opportunities for differentiation for those banks who are first to implement successfully. New technologies can result in new business models. Reengineered and improved services that are more responsive, agile and efficient can lead to a competitive advantage that is sustainable to the extent that it is difficult, costly, or time consuming for competitors to copy. Successful new products and services that mirror the changing requirements of customers go hand in hand with a growing demand for innovation and complementary IT applications. Consider NetApp in Australia, the world’s leading direct saving bank, ranked 51 out of 100 companies by Forbes (2012) on a list of the world’s most innovative companies. NetApp, via an integrated “Bank in a Box” project, was able to bring new banking products and services to the market quickly so that innovative ideas result in a competitive edge. Technologies can be very disruptive for banks that do not or cannot adapt quickly. Nonetheless, while the payoffs may be high for first movers, the risk and costs of pioneering new technologies may indicate that a fast follower strategy is advantageous. Notwithstanding numerous success stories, there are notorious failures that cause consumer confidence to fall. After implementing a software update to its IT system, a system outage at Ulster Bank in Ireland affected over 600,000 customers (Magee, 2012). Customers could not access funds or view balances for over a month. The growth in internet usage, online banking, smartphones and social networking are redefining the channels that reach consumers and signal a decline in the popularity of branch banking in most countries. As shown in Table 1, the growth rate in internet users each year exceeds the world’s population growth rate from 2000 to 2016 (Internet Live Stats, 2016). While the growth in internet users has slowed, it is nonetheless substantially greater than the world population change that remained relatively stable during this period. This led to an increasing penetration rate and based on International Telecommunications Union statistics, at the close of 2018, an estimated 51.2% of the world’s population is using the internet (Emerging Trends, 2018). According to Smith (2014) at the Pew Research Center, internet usage is less among the older generation and positively related to education and household income. Moreover, wealthy countries with high per capita income have both higher internet and social media use as well as smartphone ownership. The GCC countries are enthusiastic users of the internet and social media. Table 2 shows that among the GCC countries, Kuwait, the UAE, Qatar and Bahrain, have penetration rates over 93%. Not only are there more internet users in these countries, these countries are more likely to use social networks compared to the rest of the world (Poushter, 2015). Rising internet users and penetration, smartphone owners and e-commerce will increase the demand for innovative financial services and products tailored to these channels. The growth in the internet has led to the subsequent popularity in online banking. Consumers can use the internet, ATMs and mobile services around the clock, i.e., 24 hours a day. Figure 1 shows that the growth in the use of online banking has increased at a higher rate than other banking channels, i.e., online banking, ATMs and branch banking. In-branch transactions and branch visits have declined significantly in mature markets and in the US, an estimated 40% of branches are not profitable (Carter, 2012). While branch banking is being replaced in popularity by digital channels, more complex bank transactions will still require a local office. Customer satisfaction varies across channels: call centers tend to have below average satisfaction, the internet and mobile phones slightly higher, with ATMs and branches receiving the highest satisfaction ratings (Giridhar, Notestein, Ramamurtby, & Wagle, 2011). Tomorrow’s banks must be successful at using technology and infrastructure to focus insights on improving customer satisfaction which includes streamlining internal operations to be more efficient and effective. THE CHANGING LANDSCAPE OF THE GCC BANKING INDUSTRY Countries in the GCC, such as Bahrain, Saudi Arabia and the UAE are investing in the financial sector as a source of competitive advantage by seeking to establish themselves as regional financial centers (World Bank, 2010). On the one hand, buoyed by an ongoing wave of growth opportunities, the GCC economies enjoy prosperity when oil revenues increase. As hydrocarbon revenues are channeled into economic growth, domestic credit growth increases powered by rising consumer and investor confidence, i.e., demand for credit increases in the private sector which creates opportunities for the financial sector to lend. Inflation and asset prices increase and in the case of speculative investments such as real estate, these trends set the stage for future risk and problems. For years, high oil revenues served as a catalyst for infrastructure development, economic growth and the accumulation of financial reserves in local banks. On the other hand, lower oil revenues lead governments to cut spending, e.g., postpone infrastructure projects and borrowers become at risk for default which increases bad debts. Higher nonperforming loans and impairment charges result in tightened liquidity. Falling property prices result in developers struggling to repay loans and a decrease in the value of assets. High risk loans cause future loan growth to slow and constrain profitability in the short term. In the aftermath of the wave of loan restructuring, e.g., reductions in interest rates and maturity extensions, that occurred in Dubai, bank credit ratings were downgraded and as credit became tighter, there was slower growth in local economies. In 2016, the GCC banking sector posted an overall 2.4% decline in combined net profits of over $30 billion. Previously, GCC oil financed government spending focused on economic development and diversification through the private sector. However, to finance deficits from declining oil revenue and to build infrastructure, governments drew down savings and borrowed more locally which translated into less capital available to private sector borrowers. These cyclical ups and downs, combined with political complexities, create challenges for the banking industry. More recently, the relationships among the GCC countries have become strained. Politically, the standoff in the Middle East has Saudi Arabia, Bahrain, Egypt and the UAE in alignment but in confrontation with Qatar (with Kuwait and Oman straddling the middle). These countries have stopped all travel to and from Qatar and cut diplomatic and economic ties. As a result, the financial markets in Qatar have been affected, e.g., nonresident deposits have fallen significantly, but the government has intervened by drawing heavily from a $350 billion sovereign wealth fund to support the banking system (World Bank, 2018). Despite the tensions with Qatar, developments in the financial sector have been positive. Inflation averaged less than 3 percent and in 2017, liquidity in the banking system eased as higher oil prices resulted in higher government deposits (World Bank, 2018). The dynamics of the oil and gas sector affect the labor market, e.g., employment opportunities and salary levels. The government sector is the major employer in the region offering employees attractive salaries, benefits and stability. Despite reforms in labor policies and efforts to encourage private industry to support nationalization agendas, the public sector continues to provide for most of the nationals’ employment (World Economic Forum, 2018a). Other important demographic characteristics in the GCC that create driving forces in the labor market include high levels of expatriate labor, both skilled and unskilled, a high percentage of young people and youth unemployment, and low but improving gender equality and female labor force participation. The GCC countries employ varying levels of expatriates which creates an interesting dynamic in the employment setting. In professional jobs, salaries and benefits are typically higher for nationals compared to expatriates in similar positions and all the GCC countries have nationalization initiatives and quotas to encourage employment for locals as well as increase the participation rate of female nationals. According to The Global Gender Gap Report (World Economic Forum, 2018b), the female participation rate in the labor force is less than the males and many of the GCC countries rank low in areas such as health and survival and political empowerment (see Table 3). At the same time, educational levels for women are rising and life expectancies are increasing. More than a third of the population in the region is under the age of 25 (World Bank, 2018). When combined with rising educational levels in many of these countries, this generates a large pool of younger, more educated new entrants to the labor market. Nonetheless, the quality of education measured by externally benchmarked standards remains low compared to other regions in the world (World Bank, 2017). Falling oil prices are leading indicators to GCC countries’ GDP. To illustrate, as shown in Figure 2, plummeting oil prices ultimately affected the UAE’s GDP. As the GCC economies started to contract, initial predictions were dire. When oil prices fall, oil-dependent governments are forced to cut spending and the resultant impact on the banking industry can be lower profitability, higher loan defaults and a decrease in deposits. However, the diversification efforts of the GCC economies to reduce their dependence on oil is paying off. The effect of the dramatic drop in oil prices on GDP and the subsequent impact on sovereign bond issues is shown in Figure 3. When oil prices fall, there is a significant contraction in credit growth and profitability, deterioration of credit quality and a decline in economic growth (Ibrahim, 2019). Credit rating agencies respond by downgrading global quality ratings. Standard & Poor (S&P) rates a cohort of banks in the GCC. In 2018 and 2019, the average long-term rating of this group was BBB+. Some summary predictions of the S&P GCC Industry Report Card (Damak, Young, Tuli & Nasreddine, 2019) are: Except for a geopolitical risk, e.g., a military intervention in the region or a disruption in oil production or supply, or a significant decrease in oil prices, the banks should remain stable. GCC economies are expected to grow and recover from the attack on the Saudi Aramco facilities but will likely be constrained if there is a broader economic slowdown. Profitability may stabilize or slowdown due to global monetary policies toward lower interest rates. Following US Federal Reserve cuts in interest rates, GCC central banks followed suit in the first half of 2019 which compressed profit margins. Banks may adopt a more aggressive approach on lowering costs by increasing digitalization in core business activities, i.e., corporate and retail loans, and cutting expenses, e.g., closing branches and reducing staff. In general, the outlook for the GCC is favorable due to high government spending which will support lending and economic growth. For several GCC countries, national development plans resulting in policies and reforms that support growth, education, economic diversification and improvement of the business climate are reflected in advances in the World Economic Forum’s (2017) global competitiveness index. The UAE improved in overall rank of global competitiveness to a country ranking of 17th and leads the region (see Table 4). The high rankings in goods market efficiency, institutions and infrastructure are indicative of the government’s investment in information technology infrastructure and a stable macroenvironment. There are numerous global banks in the GCC, but the largest banks are domestic and state-owned. While governments in all countries play a major role in regulating financial services to achieve important social and economic objectives, bank competition in the GCC is low compared to the rest of the world due to strict entry requirements and regulations for foreign banks and poor credit information systems (The World Bank, 2016). In addition, a report conducted by The World Bank (2016) found that government owned banks in the GCC had advantages such as access to lower funding costs and were perceived as less risky by investors and depositors. These factors tended to reduce the threat of new entrants especially from smaller, private banks. At the same time, the cost of switching banks for the customer can be high especially when there are early settlement fees on loans or complex fee structures for closing accounts. Network readiness relates to a country’s population and organizations’ capability of adopting new innovations and technologies and translating them into economic and social benefits (World Economic Forum, 2018b) According to the World Economic Forum (2016), the UAE, Qatar and Bahrain rank 26, 27 and 28, respectively, in the world on overall network readiness which measures a country’s capability to leverage information and communication technologies (ICTs) to improve competitiveness and well-being (see Table 5). Moreover, the UAE ranks 2nd in the world on government usage and social impacts which reflects the government’s commitment to develop ICTs to diversify and grow a sustainable, competitive economy. Government investments in ICTs to improve services and the country’s competitiveness is also reflected in the World Economic Forum (2016) technology report where the UAE, Qatar, KSA and Bahrain are ranked in the top 10 countries in the world. A bank depends on Information Technology (IT) to conduct its business operations, such as online banking, payments and phone transactions. The growth of mobile based applications with the internet has made e-commerce an increasingly convenient mode for conducting commercial transactions. IT applications have the potential to help banks manage finances more effectively, increase sales, cut costs and save time. However, IT-enabled business operations are subject to numerous security threats which include identity theft and hacking. While banks have diverse security mechanisms, they are vulnerable to unauthorized attacks. According to the Norton Cyber Security Insights Report (2017), hackers stole $172 billion from 978 million consumers in 20 countries—of which over a billion was accounted for from 3.72 million consumers in the UAE. The costliest cybercrime incident reported by consumers in the UAE in the report was credit/debit card fraud. Risk management is increasingly important in financial institutions. Bank fraud is a problem in the industry as financial crimes are growing and becoming more sophisticated. According to an American Bankers Association (2018), fraud cost the industry $2.2 billion in 2016 with debit card fraud accounting for 58%, check fraud for 35% and online banking and electronic transactions for 7%. Prevention measures stopped approximately $17 billion in fraudulent losses. Banks play a key role in data protection and ensuring consumer privacy. THE UAE BANKING INDUSTRY While the Gulf region continues to pose important political, social, economic and environmental challenges, the UAE has weathered the geopolitical instability well. The UAE continues to expand and grow by investing the revenues from oil and international investments into public and private ventures. Dubai and Abu Dhabi have numerous government related entities (GREs)--commercial corporations, financial institutions and investment firms that are related to the municipality’s government. In the wake of the 2009 financial crisis, the UAE introduced changes in regulation to improve financial stability, corporate governance and transparency, provide early warning signs and moderate the effects of volatility in oil prices (International Monetary Fund, 2013), such as, maintaining higher capital requirements and limiting large dividend payouts in periods of prosperity. Socio-economic and political conditions are stable, and the government has made significant efforts to strengthen its banking sector. Economic downturns can contribute to loan defaults and reduced borrowing, but a strong banking sector with the capacity to facilitate large investments in the economy through lending and borrowing provides the backbone driving economic growth. Residential, infrastructure, commercial, and industry construction are expected to increase with government’s focus on investments for the upcoming World Expo 2020. In addition, a rising population and increasing urbanization will contribute to growth opportunities. The UAE aspires to be the leader in the financial services sector in the ME. In 2018, the combined assets of all banks grew to $780 billion, the largest in the Arab world (UAE Banks Federation, 2018). Like many countries in the GCC, the UAE has numerous large and well financed local, regional and international banks competing for business. During the oil boom, banks formed to help hold and invest the wealth generated by the surge in GCC economic growth. However, since the oil price shock, some international banks closed their operations. In late 2018, the banking sector was ripe for further consolidation given the large number of banks that continued to operate in the country, i.e., 22 national banks plus 38 foreign banks (Central Bank of the UAE, 2018). However, when comparing the number of branches, the national banks had more branches than foreign banks, i.e., 743 compared to 80, respectively. The government owns majority shares in two of the five largest local banks (The World Bank, 2016). The Central Bank regulates the banks in the UAE with the responsibility of overseeing the financial stability of the industry. The Central Bank supplies money and has regulatory powers to set interest rates that banks must comply with. With banks offering similar products and services, e.g., interest rates are regulated, an excellent customer experience can result in a competitive advantage. The customer touchpoints include branches, ATMs, call centers, online banking, and mobile banking. While customer satisfaction has improved for retail banks in the UAE, it remains low compared to other industries (UAE Customer Satisfaction on the Rise, 2017) and not all banks are focused on customer satisfaction across all channels. With more adults working, a growing number of customers prefer to access the bank through the call center instead of the branch and call centers are problematic areas for bank performance (Leijen, 2012). According to Souqalmal (2018), 32% of bank customers are largely satisfied and the most recommended banks by customers are ENBD (Emirates National Bank of Dubai), Abu Dhabi Commercial Bank (ADCB) and Dubai Islamic Bank (DIB). New entrants in the financial management sector, such as insurance, mutual funds and fixed income securities, that offer investment management services, place pressure on margins in more specialized segments. At the same time, many consumers trust their finances to full service, convenient, and well-known names. Once established with a particular bank, transferring accounts and properties between banks can be a difficult, expensive and complex process. There is increasing pressure on telecommunication networks to increase capacity in response to an explosion in demand for newly available internet services such as online banking. Mobile communication services and penetration have become important predictors of economic growth and prosperity (World Economic Forum, 2016). Mobile phones have improved communication with customers and expanded economic activity for financial institutions. As technology develops, mobile services are increasingly available and in demand from consumers and businesses. The growing use of the internet and mobile devices in both consumer and business spheres combined with the increasing presence of social networking have already led banks to create new solutions and tools to add greater value to customers. Particularly relevant to the banking industry, mobile network coverage in the UAE, the percentage of the total population that is covered by a mobile network signal, is ranked one of the highest in the world. Government use of ICTs which result from a clear plan to utilize ICTs to improve the country’s overall competitiveness is ranked the first in the world (World Economic Forum, 2016). The UAE is considered a high-income country with a GDP per capita of $37,677 US (see Table 2). The total population in the UAE is estimated by the United Nations (2017) to be 9,400,145 and nationals make up about 12% of this total. Most of the population is made up of South Asians, Egyptians, and Westerners. Age is another key demographic factor that will affect the UAE growing retail banking sector. While wealth tends to be held in the older generation, as shown Figure 4, there is a large pipeline of youth that will be needing banking services as they grow into adulthood. This pyramid shape is similar in other GCC countries. According to the United Nations (2017) World Population Prospects report, the UAE population growth projection through 2020 is 1.52% annually compared to 1.1% global growth. While older customers may have more wealth and prefer the face to face interactions of the branch, modern customers want solutions that are convenient, quick and reliable and will not accept solutions that stop at national borders. Staffing usually represents the major portion of a bank’s non-interest costs (Baltrop and McNaughton, 1992) and for banks presents several challenges. Hiring decisions must consider high cost, high tech professionals as well as the high cost of nationals vs. lower paid expatriate/clerical staff in the call centers and branches. All banks have key performance indicators of which the percentage of nationals in the work force is high on the government’s agenda. However, compared to public sector jobs, a bank job may pay half the wages, have fewer benefits and longer working hours (World Economic Forum, 2018a). Thus, there is less incentive for nationals to work for a bank and turnover can be problematic if they land a highly valued government job. While reducing staffing expense can improve efficiency in the short term, long term problems may result from lower morale and turnover when employees find a job with better remuneration. NATIONAL BANK OF ABU DHABI (NBAD) With operations in 19 countries, NBAD was one of the largest banks in the UAE with total assets in 2016 of over $114 billion. NBAD’s vision was to be recognized as the World’s Best Arab Bank. Their mission was to provide excellent products and customer service across a range of banking and related financial products including deposits, savings, loans and brokerage services. The bank targeted individual and corporate customers at the corporate, retail and private levels and in their home market, they aim to be the largest, safest and best performing bank. In addition, NBAD offered asset management platforms and catered to high-net-worth clients with wealth management and investment services. The Abu Dhabi government, through the Abu Dhabi Investment Council, was the largest shareholder at 70%. NBAD was organized into three core businesses: global wholesale, global wealth, and retail and commercial operations. The bank is implementing several strategic initiatives over the next five years. First, in their home market, there is a major initiative to rebrand and boost its extensive network of branch businesses. Furthermore, the bank was changing its e-banking platform and to offer smartphone and tablet applications. On the international front, NBAD focused on the $137 billion corporate banking market in the West-East corridor which spans from West Africa to East Asia. By targeting megacities (cities with a population of more than 10 million) and a growing middle class, NBAD planned to build bank franchises in the largest, fastest growing markets in the world. NBAD has received numerous impressive accolades. Since 2009, the bank has been ranked as one of the World’s 50 Safest Banks by Global Finance magazine. In 2013, the bank was awarded the Sheikh Khalifa Excellence Award (SKEA)—the diamond category. The UAE adopted the SKEA in 1999. SKEA uses the European Foundation for Quality Management (EFQM) model which recognizes organizations that demonstrate high levels of performance excellence and continuous improvement. There are three award levels: diamond, gold and platinum. No other banks received the award in 2013. In the same year, NBAD was upgraded in ratings by Standard & Poor (S&P) from A+ to AA-. However, in 2016, with oil prices expected to remain low, S&P placed NBAD on CreditWatch with negative implications. FIRST GULF BANK (FGB) Established in 1979, FGB offered a wide range of financial services through its Wholesale, Consumer, and Treasury and Global Markets divisions that both met client needs and supported the development of the UAE. On the international front, FGB had branches in Singapore and Qatar, representative offices in India and Hong Kong, and a subsidiary in Libya. Their mission was to maximize value for shareholders, customers and employees. Stemming from a commitment to excellence, the bank invested significantly in people and technology to provide superior customer service. The majority of FGB is owned by several sons of the late Sheikh Zayed bin Sultan Al Nahyan. FGB had a banner year with record profits of $1.6 billion at the end of 2016. At the Banker Middle East Industry Awards, FGB was awarded the Best Bank in the United Arab Emirates. FGB received the award for above average financial performance due to a winning strategy based on (1) concentration on core processes and fundamentals, (2) market development through geographic expansion, (3) differentiation through innovation, and (4) product development through strategic alliances. Like other banks in the UAE, FGB pursued a rebranding platform to reflect their global, contemporary and ambitious plans to grow revenues. While committed to the development of nationals and being a leading service provider across all core businesses and operations, FGB focused on both the Emirati (nationals) and the expatriate markets. To address prominent health concerns in the UAE, FGB developed insurance programs for diabetes and breast cancer. Moreover, FGB formed a strategic partnership with an insurance company in India to develop insurance and retirement plans primarily for the Indian expatriate market—the largest demographic group in the UAE. Late in 2013, FGB purchased Dubai First, a consumer financial services business with a strong market share in credit cards for AED 601 million. The acquisition afforded FGB the opportunity to offer an impressive range of new credit cards that were targeted to meet the needs and add value to various market segments. Dubai First specializes in innovative and value-centric credit cards, that serve the unique characteristics of contemporary “lifestyle-savvy” customers. The product line includes exclusive, super-premium, premium, commercial and value cards. For example, the Royale Card is a MasterCard that targets royalty and the elite echelons of society. The Royale Card is the region’s first diamond-embedded World MasterCard. It is available by invitation only and has no pre-set spending limit. Costing a mere AED 1,500 annual fee, the card, has a myriad of benefits and perks to the user. FAB: THE MERGER First Abu Dhabi Bank (FAB) is the largest bank in the UAE. Operating from the capital city of Abu Dhabi, the Bank has an international presence in 19 countries.  Offering a broad array of unique, customized products and services to its customers, their slogan to, ‘Grow Stronger’, represents a commitment to putting their customers at the forefront of their business operations. The slogan was coined from FGBs faster growth rate and NBADs larger size. FAB meets a range of regulatory disclosure requirements (Risk Management, Basel II-Pillar III Disclosure Reports and Corporate Governance Report) and has also adopted the internationally recognized Equator Principles, a framework that provides oversight on environmental and social risks of projects.  FAB’s mission is to empower the communities in which they operate in by creating a positive impact, whilst investing in people and utilizing user-friendly technology to improve their services. In short, FAB aims to be the leading financial partner for customers, businesses and governments doing business along the West-East corridor linking Asia, the ME and Africa. The Bank publishes sustainability reports and their guiding principles for corporate governance are: leadership, accountability, transparency, and strong corporate governance standards. Not since 2007, when Emirates Bank merged with National Bank of Dubai to become Emirates Bank of Dubai, has there been a high-profile merger like NBAD and FGB. In 2017, the combined asset value of the two banks was over $175 billion making it second only to Qatar National Bank in the GCC (see Table 5). Measured by Tier One Capital, the new FAB, is the largest (see Table 5). When measuring the size of banks, total assets are important, but Tier 1 capital is considered the core measurement of financial strength by experts. While expected losses are accounted for with provisions for nonperforming loans, Tier 1 capital provides protection against unexpected losses. It is a minimum amount, i.e., percentage of equity, held by the bank that is set by regulators and ultimately limits the amount that a bank can loan. Tier 1 capital ratios are defined as the bank’s equity capital / the total of risk-weighted assets. International banking standards, known as Basel I, II, and III, are determined by a committee comprised of central bank governors. Since the financial crisis in 2008, the UAE and other Gulf countries adopted Basel I and II and are starting to adopt Basel III. Each subsequent version increases the level (%) of Tier 1 capital that is required (Basel III requires 6%). The consolidated financial statements for FAB follow in Table 8. Table 9 shows the financial data and analysis for the top banks in the Middle East. While Qatar is the largest in terms of revenues, FAB has shifted the balance of power and is the largest bank in the GCC region based on Tier 1 capital of $71.7 billion. The capital adequacy ratio is the ratio of real capital to total risk weighted assets and is an indication of margin of protection for both depositors and creditors against unanticipated losses, e.g., economic downturns. ROA is considered by many analysts to be the best indicator of soundness and management’s effectiveness as it is less subject to distortion from inaccurate loan loss provisions which do affect ROE (Baltrop and McNaughton, 1992). Mergers afford banks the opportunity to combine strengths, overcome weaknesses and take advantage of more growth opportunities. By creating a new, larger entity, the FAB merger will provide access to new markets and segments while allowing the Bank to leverage its significant assets to aggressively pursue new business in the region and abroad (Khan, 2017). The major strengths that NBAD brings to the table are their overall size built on successful domestic wholesale operations and a strong international market presence. Combined with FGBs internal operating efficiencies and profitable domestic retail business, FAB aims to be a major player in the West-East corridor and beyond (Khan, 2017). Consolidating management/staff functions and operations can eliminate redundancies and develop economies of scale. Additionally, the merger helps the new bank, First Abu Dhabi Bank (FAB), move from a AA-/Watch Neg to AA- Stable. This improvement in credit rating helps lower the bank’s overall borrowing cost from capital markets. In general, mergers create opportunities but face significant reorganization challenges as redundant operations are merged. A new organizational structure is needed with common practices, systems and policies. Will NBADs larger size dominate the new organization or will they be able to leverage FABs faster agility in the market? The Future With solid economic and financial fundamentals in place, the GCC economies are predicted to grow. Global hydrocarbon prices, a key driver of growth, are predicted to steadily rise boosting government revenues and investor confidence in the region (World Bank, 2018). Other oil exporters in the region, e.g., Iraq, are mired in conflict with difficult humanitarian, economic and political conditions. Nonoil (tourism, retails sales, and trade) sectors are predicted to grow at an even faster rate. Furthermore, in 2017, all the GCC countries voted to implement a Value-Added-Tax (VAT). Projections for the UAE economy are especially favorable. With the launch of the VAT in January 2018 and the date for the Dubai Expo 2020 nearing, the International Monetary Fund predicts the UAE economy will grow 3.4% in 2018 and gain momentum over the next few years (Combes, 2018). Does the megamerger that created FAB provide an opportunity for the bank to consolidate resources and improve profitability while achieving growth at home and abroad? In May 2019, Abu Dhabi Commercial Bank (ADCB), a “one country bank,” announced a merger with Union National Bank and Al Hilal Bank to create the 3rd largest lender in the UAE (Gulf Business, 2019). With assets totaling $115 billion, the newly formed ADCB has 21% of the retail loans market (Gulf Business, 2019). It is expected that the latest merger will result in at 500 job cuts. Employment is a cost that can be quickly reduced during an economic contraction or merger. At the announcement of the ADCB merger, industry analysts are wondering whether consolidation in the region will continue and if FAB is well positioned for future growth. Table 1. Internet Users and World Population Statistics Table 2. Population, Internet Users and GDP by Country Figure 1. Mobile Banking Adoption Won’t Match Online in the Foreseeable Future Javelin Strategy & Research (2018) Table 3. GCC Country Rankings on Gender Gap Figure 2. Price of Crude Oil and UAE GDP from 2001-2016 Bloomberg Finance (2018) Figure 3. GCC Oil Prices and Sovereign Issues Bloomberg Finance (2018) Table 4. Global Competitiveness Index and Subindexes Country Rankings Table 5. Network Readiness Index and GCC Countries Figure 4. UAE Age Distribution UAE Department of Health (2016) Table 6. NBAD Financial Statements Table 7. FGB Financial Statements Table 8. FAB Financial Statements Table 9. Ratio Analysis 2018 References American Bankers Association. (2018). Deposit account fraud survey. Retrieved from Bloomberg Finance. (2018). UAE crude oil price 2000-2018 in proportion to UAE GDP-function GP. Carter, J. (2012). Next generation branch banking. England: Financial News Publishing Ltd. Central Bank of the UAE. (2018). Annual report. Retrieved from Combes, J. (2018). Steady rising global oil prices to be key driver of growth in the GCC. CPI Financial. Damak, M., Young, B.J., Tuli, P., & Nasreddine, Z. (2019, October 9). Industry report card: GCC banks 2020 industry outlook: Stable credit fundamentals clouded by event risks. S&P Global Ratings. Devos, E., Krishnamurthy, S., & Narayanan, R. (2016). Efficiency and market power gains in bank megamergers: Evidence from value line forecasts. Financial Management, Winter, 1011-1039. Emerging Trends (2018, December 6). New ITU statistics show more than half the world is now using the Internet. International Telecommunications Union. Retrieved from Forbes. (2012). The world’s most innovative companies. Retrieved from Fraisse, H., Hombert, J., & Lè, M. (2018). The competitive effect of a bank megamerger on credit supply. Journal of Banking and Finance, 93, 151-161. Gencoglu, B. (2016). Global mergers and acquisitions in an unpredictable political and economic political and economic environment. IFN Reports. Retrieved from Giridhar, S., Notestein, D., Ramamurtby, S., & Wagle, L. (2011). From complexity to client centricity. IBM Global Business Services. Gulf Business. (2019, May 1). Abu Dhabi banks ADCB, UNB and Al Hilal merge to create third largest UAE lender. Retrieved from Ibrahim, M. H. (2019). Oil and macro-financial linkages: Evidence from the GCC countries. Quarterly Review of Economics and Finance, 72, 1-13. International Monetary Fund. (2014). Assessing concentration risks in GCC banks. Retrieved from International Monetary Fund. (2013). United Arab Emirates. (IMF Country Report No. 13/239). Retrieved from Internet Live Stats. (2016). Internet users in the world. Retrieved from Internet World Stats. (2019). Internet Usage in the Middle East. Retrieved from Javelin Strategy and Research. (2018). Mobile banking adoption won’t match online in the foreseeable future (Ref: 16-2003J-OP). Retrieved from Khan, S. (2017). The changing dynamics of the UAE banking sector. MEED Business Review, 49-51. King, J. (2018). FAB’s arrival turns Middle East table on its head. Top 1000 World Banks. Leijen, M. V. (2012). Bank call centres not ringing in satisfaction. Emirates 24/7. Retrieved from Magee, K. (2012, September 26). Ulster bank crisis: ‘Several thousand’ customers leave. BBC. Retrieved from McKinsey. (2011). Big data: The next frontier for innovation, competition, and productivity. McKinsey Global Institute. Norton Cyber Security Insights Report. (2017). Symantec Corporation. Retrieved from Poushter, J. (2016). Smartphone ownership and internet usage continues to climb in emerging economies. Washington, DC: Pew Research Center. Retrieved from PwC Middle East. (2019). Banking and capital markets. Retrieved from Shim, J. (2019). Loan portfolio diversification, market structure and bank stability. Journal of Banking and Finance, 104, 103-115. Smith, A. (2014). PewResearch internet project: Usage and adoption. Washington, DC: Pew Research Center. Retrieved from Souqalmal. (2018, May 23). Would you recommend your bank? 32% say ‘YES’… Retrieved from UAE Banks Federation. (2018). Annual Report. Retrieved from UAE Customer Satisfaction on the Rise. (2017, August 8). Gulf News. Retrieved from UAE Department of Health. (2016). Abu Dhabi Health Statistics. Abu Dhabi: Health Authority of Abu Dhabi. Retrieved from United Nations. (2017). World population prospects: The 2017 revision. New York: Department of Economic and Social Affairs, Population Division. Weiß, G. N. F., Neumann, S., & Bostandzic, D. (2014). Systemic risk and bank consolidation: International evidence. Journal of Banking & Finance, 40, 165-181. World Bank. (2010). Economic integration in the Gulf Cooperation Council (GCC). Washington, DC: The World Bank. World Bank. (2016). Competition in the GCC SME lending markets: An initial assessment. Washington, DC: The World Bank. World Bank. (2018). Global economic prospects, January 2018: Broad-based upturn, but for how long? Washington, DC: The World Bank. World Economic Forum. (2016). The global information technology report. Geneva: World Economic Forum. World Economic Forum. (2017). The global competitiveness report 2017-2018. Geneva: World Economic Forum. World Economic Forum. (2018a). The Arab global competitiveness report 2018. Geneva: World Economic Forum. World Economic Forum. (2018b). The global gender gap report. Geneva: World Economic Forum. Teaching Note A brief synopsis of the case. Based on the megamerger that created FAB (First Abu Dhabi Bank), the case was developed to provide a challenging case that involves headline strategic issues in a language that students can understand with ample opportunity to apply what they have learned from finance, management, and strategy courses in a business curriculum. In addition, the content is organized and presented to encourage students to incorporate the latest developments in financial and organizational analysis that is solidly in the mainstream of contemporary management thinking. The student gains familiarity with the form, format and terminology of bank financial statements, analyzes the bank’s performance and then makes strategy recommendations to improve performance. As a standard of comparison, peer group banks ratios are provided from Standard and Poor’s. The case provides ample coverage of business conditions in financial markets with a focus on commercial banking. The oil-rich region of Middle East gulf states is one of the fastest growing markets in the financial sector industry. The focal company, FAB, resulted from the largest mega-deal of all time in the Middle East (ME) region that occurred between NBAD and FGB creating FAB valued at $175 billion in assets. The external analysis examines trends in the banking industry at three levels: global, regional (GCC), and local (UAE). On a global scale, technological change and internet growth are aligned with research on bank channels and customer satisfaction to address how banking strategies can respond to create competitive advantage. Important regional trends include demographics in the GCC region and the impact fluctuations in the oil and gas sector have on bank ratings and competitiveness. This is followed by a review of industry trends in the UAE. The case provides an overview of the strategies, merger and detailed financial performance of NBAD, FGB and the newly formed FAB. A major premise of this case is that technology combined with innovation and risk management functions are essential in the financial services industry. Identification of the intended course(s) and levels, topics covered in the case and its specific learning objectives. Authors should identify any associated readings or theoretical material that instructors might assign to students as necessary background for the assignment of the case. Identification of the intended courses and levels: The case focuses squarely on what every student needs to know to understand (1) financial ratio analysis in the banking industry (2) driving forces in the external environment of the banking industry and (3) developing and implementing business strategies in this important environment. The case may be positioned as an exciting capstone for an undergraduate business school curriculum or as a case in financial ratio analysis. At the graduate level, the case can be positioned to include more in-depth coverage of the analysis and strategy recommendations to include, for example, the five forces analysis and strategic group map. The case can be integrated successfully in a range of finance courses as well as strategic management to include: Finance and Accounting Finance (core course) Principles of Financial Accounting Financial Management Management of Financial Institutions Retail Banking/Commercial Bank Management Financial Statement Analysis Financial and Managerial Accounting Corporate Financial Accounting Consumer Finance Management and Marketing Strategic Management Managerial Economics (money and banking) Strategic Bank Marketing Topics covered in the case: The notable features and topics that are emphasized are: Bank ratio analysis, income statements and balance sheets, e.g., capital adequacy, loan losses, provisions for nonperforming loans, etc. Balanced scorecard and key performance indicators Bank strategies Central bank role Company resources, capabilities and distinctive competencies Concentration risk in banks’ credit portfolio in countries that rely on oil exports Cybercrime Driving forces and key success factors Economic growth: interrelationships between oil and gas markets and country economies, e.g., gross domestic product External analysis in the banking industry Financial management and ratio analysis in banking Global banking trends including technological change, internet growth, and bank channels Global competitiveness, e.g., infrastructure, macroeconomic environment, labor market efficiency, technological readiness and innovation Industry and competitive analysis Mergers and bank consolidations Strategic analytical tools, e.g., SWOT (strengths, weaknesses, opportunities and threats), financial ratio analysis, five forces diagram and strategic group map Strategic management Vision, mission and objectives Specific learning objectives: To identify and apply core concepts, principles and theories in financial and strategic management to solve contemporary business problems in a banking organization. To develop competencies to think strategically about a company, analyze the effectiveness of its present strategy, and its opportunities for gaining a sustainable competitive advantage. To build analytical and critical thinking skills by conducting a strategic analysis of the banking industry and competitive situation and, especially, to provide students with a stronger understanding of the competitive challenges of the external market environment. To integrate the knowledge gained in earlier core courses in the business curriculum and demonstrate how the different parts of a business need to be managed in strategic congruence for a company to achieve a sustainable competitive advantage. To provide hands-on experience in strategic management which includes developing a strategic plan, integrating the major business functions, e.g., operations, accounting, human resource management and marketing, evaluating strategic options, and implementing strategy for the organization. To acquaint students with the banking industry, ratio analysis and key performance indicators. To describe appropriate strategic and financial analysis tools, how they are used and how they drive strategic recommendations, implementation and evaluation. To develop business acumen and managerial judgment in assessing business risk and creating results-oriented action plans in banking. To communicate effectively in writing and/or orally to deliver a professional-level presentation. For graduate courses, to be able to develop an applied generic strategy map which identifies the leading indicators of bank performance. Additional readings: Most strategic management textbooks will include coverage of the general steps in strategic planning and implementation as well as common tools such as the SWOT (strengths, weaknesses, opportunities and threats) and financial ratio analysis. Gamble, Peteraf and Thompson’s (2019) strategy textbook gives excellent detail and presentation of strategic management and Porter’s five forces. In addition, the seminal article published by Porter in HBR in 2008 is provided as an additional reading for the five forces analysis. Kaplan and Norton’s 2008 HBR article provides general and detailed steps of both the strategic planning and implementation process and the generic strategy map. Strategy Textbook: Gamble J. E., Peteraf, M. A., & Thompson, A. A. (2019). Essentials of Strategic Management: The Quest for Competitive Advantage, (6th ed.) McGraw-Hill/Irwin. Five Forces Analysis: Porter, M.E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78-93. Generic Strategy Map: Kaplan, R.S. & Norton, D.P. (2008). Mastering the management system. Harvard Business Review, 86(1), 62-77. Suggested teaching approaches: The case is suitable for class discussion, a team oral presentation, and an individual written case. If the case is used in a course that focuses on retail banking, it is an excellent lead-off case as it introduces the basic concepts in financial ratio analysis. In a strategic management course, it is well positioned later as a comprehensive midterm or end-of-course/final exam case. An undergraduate class, that has an understanding of financial ratio analysis, can readily grasp the ratio analysis that is specific to the banking industry. There is ample information on the global, regional and local external environment as well as competitive conditions to use the case in a class session on external analysis. When the case is used for class discussion, we find it especially effective to provide students with the assignment questions in the next section and emphasize the importance of preparing meaningful answers to the questions before coming to class. Note that there is an opportunity to engage students in a five-forces analysis and strategic group map. As a team exercise, consider assigning each group one force to analyze and describe. Each group should take about 30-40 minutes to complete this assuming they have an understanding of the information in the case. After a presentation and discussion of each force, the class can more accurately gauge the collective strength of the forces that prevail in the banking industry. The generic strategy map also lends itself well to a group exercise. Assignment questions for students. What positive benefits can accrue from the merger of NBAD? Do you think the merger will result in more operational efficiency for FAB, and if so, will the consumer benefit? Large bank mergers can increase the market power and growth. Both Europe and the US have guidelines for mergers that maintain that mergers should not result in customers being worse off—that optimally, they should be better off regarding product price and variety. The FAB merger was motivated by synergy in complementary strengths in retail and investment banking—not to prop up poor financial performance. The merger can create stability and provide broader coverage in the types of products and services offered across customer groups, e.g., loan diversification as well as more geographic coverage. The research on whether depositors benefit from mergers is mixed. An adverse impact on consumers will occur if interest rates on deposits are lower and interest rates on loans increase. If the opposite occurs, and efficiency gains are passed onto consumers via higher interest rates on deposits and lower rates on loans, society will benefit. At the same time, if competitive rivalry intensifies as local banks are pressured to adjust interest rates that are more favorable to consumers, ultimately banks’ profitability will be eroded. Regardless, improvements in operational efficiency will be a key success factor for FAB and other banks in the UAE. If the merger does not generate synergy, e.g., efficiency, then prices may increase. How do you think the merger that created FAB will impact the competitive conditions in the industry? Economists and policy makers often focus on the effects of consolidation and concentration in commercial banking on competition. As a result of the FAB and ADCB megamergers, the banking market in the UAE is more concentrated which suggests that competition could decrease. For example, competitive banking systems are associated with greater access to credit and therefore, industrial expansion and economic development. There will be a negative competitive effect if there is a reduction in the credit supply to small and medium-sized businesses. What are key success factors and driving forces in the UAE banking sector? Technology--IT investments in improving transactions, operational efficiency and security Technology Innovation—Increasing advances in technology to offer sophisticated client services more effectively. More and more consumers are adopting the use of digital networks which expands the potential services that banks can make available through digital technologies. Operations--Improvements in cost and efficiency will directly improve profit margins. Consistent Customer Service Levels Across All Channels: online banking, telephone, ATMs and branches. The banking industry is regulated by the Central Bank that controls fees and charges, so banks can differentiate their services by being customer centric. Satisfied customers are more likely to open more accounts and use more customers as well as recommend the bank to others. Digital banking and convenience are important but forming relationships with customers will impact customer satisfaction. Measuring customer satisfaction and identifying ways to improve is essential. Human Capital: changing technologies will be accompanied with changes in knowledge and skill requirements. The knowledge and skills required for technology improvements vs. traditional banking are different. (1) Technology and digital services incur development and implementation costs as ICT systems are customized and installed. Operating costs are low. There will be a growing demand for IT and innovation specialists. (2) Branch operations have higher labor costs, require customer service skills and generally do no operate 24/7 as digital technologies do. The range of products offered by the bank will make it important to have qualified sellers of the products, e.g., in financial consulting, investments, asset portfolios, etc. (3) Management skills are important to organize the work effectively, optimizing staffing levels and skill mix. Performance management and the ability to develop goals and practical action plans to achieve results will be essential, e.g., to realize gains in productivity and efficiency. Conduct a Five Forces Analysis of the banking industry and summarize your findings in a discussion of the attractiveness of the industry potential from a profit-making point of view Overall, the industry is attractive from a profit-making standpoint for industry incumbents. Forces that make the industry more attractive are growing demand and strong government support for national banks. The forces that make the industry less attractive are intense competitive rivalry and weakly differentiated products and services. The threat of new entrants and substitute products represent a weak force. Even though buyer and supplier power are moderate, the larger national banks will exert the most influence in the market. Five Forces Model of Banking Industry Banks who understand the culture/nationals wants and expectations and develop innovative services that differentiate their brand can do well. Risks to the favorable forecasts in the industry stem from amplification of geopolitical tensions and weaker-than-expected increases in oil prices. Analyze the financial statements for FGB, NBAD and FAB. * Ratios in Table 9 were from the Bloomberg (2018) data base so calculations differed depending on the accounting rules that were applied, e.g., ROA was based on average assets over 2 years for the Bloomberg calculation. Total deposits are increasing for FAB which reflects favorable and strong customer sentiments and better returns for cash deposits. The growth rates in deposits and assets for the 2 banks has fluctuated and from 2015-2016, FGB grew 8% in total assets compared to 3% for NBAD. FGB is one of the most efficient lenders in the country and is more profitable than NBAD measured by the NPM, ROA, ROE (in 2016) and NIM. Good performance targets for a medium size regional bank in the US is ROA=1; ROE=15; NIM=.045. Regarding asset quality in Tables 7 and 8, FGBs nonperforming loans/loans has improved and in 2016, is smaller than NBAD. FGBs nonperforming loans/assets has improved over the last 6 years and is similar to NBAD at 1.5 and 1.6 respectively. The loans/deposits ratio indicates the extent to which a bank is able to lend its deposits. An appropriate loans/deposits ratio is between 70-80% (Baltrop and McNaughton, 1992). A higher ratio may indicate greater risk while a lower ratio may indicate inadequate lending opportunities. FGB is lending more and NBAD is more liquid. The NI/Staff Expense indicates that FGB is generating more profit than NBAD for a given level of staff expense, i.e., either paying higher salaries or employing more staff with a high level of expertise. For Staff Expense as a % of Total Assets, good performance for a bank in the US is 2 indicating that the staff % in FGB is almost 2 times and for NBAD over 3 times this rate (Baltrop and McNaughton, 1992). Conduct a SWOT analysis. What strategy would you recommend to FAB for 2018? The country’s growing young, educated and technologically savvy population combined with their advanced network infrastructure presents an unprecedented opportunity to develop innovative products and services with connectivity to a range of platforms. This will require continued investments in innovative, new technologies. The banking sector in the UAE is well managed and based on the strong backing of the government and economic growth, consumer and investor confidence is high. FAB is poised for continued growth. Students should recommend that FAB pursue a high growth strategy. Broad Differentiation FAB should pursue a broad differentiation strategy on two fronts. First, FAB should offer a wide range of financial consulting and investment services to (1) Consumer, (2) Retail and Commercial (3) Global Wholesale and (4) Global Wealth. In the UAE, FAB should develop services that cater to the major demographic groups, i.e., young and older nationals, expatriates (Arabs, Westerners and Indians). Regarding differentiation, more focus on client satisfaction and quality of service is a key success factor for banks that want to distinguish themselves. FAB needs to leverage their significant resources to provide new, innovative services to create new categories of interest income, charges, and commissions as well as concentrate on excellent core processes and services covering the full range of traditional banking. Improved usability and high levels of customer service will require the adoption of new technologies across all platforms/channels. A transition to higher automation will aid in reducing costs but will take time. Core lending activities and branch operations will continue to require significant employee competencies. The economy is predicted to grow so FAB needs to assess (1) how much capital needs to be reinvested to fund organic growth and growth through innovation and new technologies vs. (2) how much capital should be given back to shareholders via stock buybacks and/or special dividends as a wealth maximizing strategy. Focus on Banking Channels: While the growth in mobile banking has been impressive, the role of online banking remains a key customer channel even among mobile banking users. Mobile banking is used primarily for simple, quick transactions while online is used for a broader range of services. Fab should invest in making online banking a high-quality customer experience. Further, FAB should measure customer satisfaction with all four channels, i.e., online, ATM, mobile banking and branch to meet evolving customer needs. FAB should examine investing in technologies that improve the bank experience (or add value) across these channels. Operations and Knowledge Management Build a high-performance culture by focusing departmental key performance indicators and rewards on achievement of business results. Ensure that knowledge transfer and information sharing is encouraged through partnerships between nationals and expatriates. Measure customer service and collaborate for success. Foreign Expansion Consistent with their mission to grow stronger, students will want to consider the potential of an increasing presence in foreign markets through foreign acquisitions and branch expansion. International expansion has the advantage of diversifying their income stream as well as their depositor and investor bases thereby reducing the risk associated with reliance on one country. Global expansion supports a high growth strategy. Develop a generic strategic map. The following generic strategy map for a bank has been developed as a powerful example of how to integrate the information presented in the case as an integrated, coherent strategy of cause-and-effect relationships. Students should be encouraged to focus on key success factors and strategy enablers that will ultimately result in strong company performance, i.e., gains in profitability and competitive strength. The strategy map should reflect appropriate key performance indicators for executive reports, e.g., balanced scorecards, that will fit the company’s situation and build a sustainable competitive advantage.