Based on the market’s reaction so far, investors do not seem too hung up on the failed merger proposed between RHB Bank Bhd and AMMB Holdings Bhd (AmBank).

Since the proposed exercise was announced in early June, shares of both stocks have trended down signalling investor nervousness on potential benefits and synergies that the two banks would have derived considering there were duplication in business. Only RHB’s shares are up since Tuesday’s announcement that the merger was off.

When the merger talks were first announced in June, it looked like the marriage between both banks would be a formality.

It had the “blessings” of the regulator, which has been advocating for banks to be institutionalised. But both banks could not reach an agreement on the terms and conditions.

Market talk is that there were issues on both banks that did not sit well with substantial shareholders of the opposing banking groups.

For RHB, this is the second failed merger attempt in recent years.

In 2015, it was part of the proposed three-way mega merger involving CIMB Group Holdings Bhd and Malaysia Building Society Bhd.

That deal was called off by CIMB after declining economic conditions cast doubts over the synergies that could have been reaped from the exercise. Aabar Investments PJS, which holds 17.75% in RHB was also seen as wanting a higher price for its shares in RHB.

Before this, RHB, then known as RHB Capital Bhd, was at the centre of a takeover battle by bigger rivals Malayan Banking Bhd and CIMB.

Aabar was the stumbling block in that deal too as it had apparently sought a high exit price.

RHB’s valuation has often been benchmarked against the price that Aabar paid in 2011 for its stake from sister company Abu Dhabi Commercial Bank (ADCB).

ADCB bought into RHB at a valuation of 2.25 times price-to-book value (P/B).

But Aabar as a deal breaker is less a factor now as its stake has been diluted from 25% initially after it did not subscribe to RHB’s recent rights issue and dividend reinvestment plan.

This is because through the asset and liability method, RHB, would have only needed a simple majority of 50% plus one share to take over the assets and liabilities of AmBank. On the other hand, AmBank would require 75% shareholder acceptance.

RHB’s major shareholder is the Employees Provident Fund (EPF) with 40.8% stake, while another key shareholder is Tan Sri Ong Leong Huat’s OSK Holdings Bhd with 10.13%.

So for the time being, it looks like RHB, the fourth largest bank by assets, has to move on its business alone.

While we cannot discount the possibility that it could seek other suitors as the central bank’s approval for merger negotiations runs through to end of November, this is unlikely the case.

As for AmBank, there would likely be new shareholders coming in given that Australia and New Zealand Banking Group Ltd (ANZ) of Australia is looking to divest its 23.78% strategic stake.

This being the case, AmBank, which is sixth largest by assets, will still be seen as a “M&A” play.

It was said that Kumpulan Wang Persaraan (KWAP) was in discussion to assume ANZ’s block of shares. It cannot be ruled out that this could still happen.

Then there is Tan Sri Azman Hashim, AmBank’s chairman and second largest shareholder with 13%, who is said to be “impartial to the move.”

At some point, the 78-year old banker would need to make a decision has to what he has to do with his shareholding.

Banking regulations do not allow individuals to own more than a 5% stake in a financial institution and need an approval from the central bank to hold a larger stake.

Whether this block of shares can be put into a trust or the exemption allowed to be extended to the next generation is not certain and unlikely the case.