[ 2014-01-21 ]

Standard Chartered back atop takeover target list
When Standard Chartered and HSBC engaged in a
£500m bidding war for Royal Bank of Scotland more
than 30 years ago, it did not end well. The UK
competition authority blocked both bids, citing
their damaging impact on “career prospects,
initiative and business enterprise in
Scotland”.

Ever since its failed swoop for RBS in 1982,
StanChart has been regularly cited as a potential
takeover target. It narrowly survived a bid from
Lloyds in 1986 when rescued by investors dubbed
the “three white knights” and was later
approached by several rivals, including Barclays.

Now this UK-based commercial bank specialising in
Asia, Africa and the Middle East is back at the
top of the list for many investment bankers and
analysts as the most likely target of a big
banking takeover.

Once among the most expensive banks in the west,
StanChart’s shares have lost a third from their
peak last year, while most banks have seen their
shares soar. Its price-to-book multiple has
dropped from 1.7 times a year ago to 1.2 times, in
line with its main rival HSBC, and even below
banks hit harder by the financial crisis, such as
Spain’s Bankia.

“At this kind of valuation it starts to look
very attractive to a potential bidder,” says
Christopher Wheeler, banking analyst at
Mediobanca. “They are definitely at risk, but it
is almost certain they would oppose a bid.
However, I do wonder if they think their time has
come.”

Ronit Ghose, banking analyst at Citi, says:
“Relative to the peer group, StanChart has gone
from having one of the highest multiples to one of
the lower ones, and it now trades at a 40 per cent
discount to Asian peers on a sum of the parts
basis.”

Mr Ghose and Craig Williams, his colleague in
Citi’s Australia office, caused a stir last week
by publishing research that asked if a takeover of
StanChart could make sense for ANZ, Australia’s
third-largest bank by market value.

They pointed out that ANZ’s market
capitalisation was 50 per cent higher than
StanChart’s, and its higher price-earnings
valuation would allow the acquisitive Australian
bank to pay a 20-25 per cent premium and still end
up creating value for shareholders on an earnings
per share basis.

Others historically interested in a deal have
included Spain’s Santander and JPMorgan in the
US, though the latter is now seen as excluded from
big transactions given its recent regulatory
troubles.

The speculation around StanChart has been fuelled
by its recent propensity for slipping on a series
of banana skins. This started in August 2012, when
the bank was accused of violating US sanctions on
Iran and forced to pay $667m to US regulators.


Since then it has suffered a $1bn writedown in its
South Korean business and abandoned a longstanding
double-digit percentage revenue growth target due
to weakness in financial markets and
slower-than-expected growth in several markets,
including India.

The latest setback came earlier this month when
StanChart announced the surprise departure of its
well-regarded finance director Richard Meddings
and consumer boss Steve Bertamini. The search is
under way for a new finance director, while the
consumer business has been folded into its bigger
wholesale banking unit under its head Mike Rees.

StanChart appears to be one of the better
capitalised banks, with a core tier one capital
ratio of 10.5 per cent under the latest Basel III
regulatory standards. But there are still nagging
doubts among some analysts over whether it may be
forced to raise capital if it is hit by a further
slowdown in emerging market economies and more
financial market volatility caused by the Federal
Reserve reducing its monetary stimulus.

After this month’s management reshuffle, Credit
Suisse analysts said their “main concern in
terms of a weak capital position has not yet been
addressed”.

Yet the bank is dismissive of these worries. Peter
Sands, chief executive, said recently that the UK
regulator was satisfied with its capital
position.

Bank insiders point out that StanChart’s main
Asian markets continue to achieve economic growth
of about 6 per cent – well above that of the US
and Europe.

Furthermore, large bank mergers seem to have
fallen out of fashion in recent years as
regulators step up efforts to reduce risks in a
sector already considered “too big to fail”.

And with the “global systemically important
financial institutions” being forced to hold
extra capital on a sliding scale depending on
their size, there is an added deterrent against
large deals.

Yet some bankers say there is still interest in a
possible move for StanChart. “It could be an
attractive deal for Wells Fargo to expand in Asia,
and don’t forget the Chinese,” says one
banker.

However, Wells Fargo executives have ruled out a
transformational international deal for the
foreseeable future.

A wild card is the 18 per cent held in StanChart
by Temasek, the Singapore state investment agency,
which looked at selling its stake a couple of
years ago and is still open to offers at the right
price after withholding support from several
executive directors for two years running.

Source - FT

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