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LONDON, Jan 10 (Reuters Breakingviews) – Tahnoon bin Zayed al-Nahyan may not end tie-up with Standard Chartered (Stan.L). First Abu Dhabi Bank (FAB) (FAB.AD)The $50 billion Gulf lender, which is chaired by the brother of the United Arab Emirates president, said last week it was considering a bid for the $23 billion U.K.-listed lender. With Standard Chartered still trading above pre-speculation levels, another attempt at FAB, which is 38% owned by state investment fund Mubadala, is not out of the question.
In a sense, the method reflect Bullish sentiment sparked by the UAE’s newly inflated oil wealth. But the acquisition of Standard Chartered also has strategic logic. Half of its revenue comes from Hong Kong, China and other Asian countries, where Abu Dhabi gets most of its oil.The UAE has signed several trade agreements with various countries such as India in the past year.Standard Chartered Commodities Trading Strength Suitable for Abu Dhabi aspires to become an energy trading hub.
StanChart is also cheap. Even with a 30% equity premium, FAB could acquire StanChart for $30 billion, or about 70% of expected tangible book value. That’s 28% less than other Asia-focused lenders, according to Breakingviews calculations. Not bad for a bank that Barclays analysts see returning on tangible equity of 10% in 2024. FAB probably thinks it can cut costs for StanChart, which accounts for two-thirds of revenue.
The obvious stumbling block is capital. StanChart’s balance sheet is three times the size of FAB’s $300 billion, while the British bank’s $253 billion in risk-weighted assets dwarfs the UAE’s $158 billion. post-2008 global rule Penalizing larger and more complex banks means the combined group may have to hold additional capital equivalent to around 0.5% to 1% of risk-weighted assets. That could add $2 billion to $4 billion, according to Breakingviews calculations.
Tahnoon probably thought this was too much trouble. After all, he was tasked with convincing Singaporean wealth fund Temasek, which owns 16% of Standard Chartered, to accept a deal that could be an all-stock merger, in which FAB would own 62% of the combined entity. Temasek may also be reluctant to back a potential $4 billion rights issue to fill the funding gap. StanChart’s state fiefdom structure could complicate cost cutting, regulatory approvals, and possibly even increase capital.
That said, Mubadala could deploy some of the UAE’s expanded net oil exports of $125 billion income Increase stake in 2022. And Tahnoon’s other job is hosting IHC (IHC.AD)an Emirati company whose valuation doubled to $240 billion time, suggesting a person in a hurry. A second bet on StanChart or some of its picks is by no means out of the question.
Follow @karenkkwok on Twitter
(The author is a Breakingviews columnist for Reuters. Opinions expressed are her own.)
background news
First Abu Dhabi Bank (FAB) said on Jan. 5 that it considered a bid for London-listed Standard Chartered but no longer did so.
Bloomberg reported earlier that FAB had been exploring an offer for Standard Chartered as part of a plan to build an emerging-markets bank, sending Standard Chartered shares up 20%.
Abu Dhabi Bank said it had been in the “very early stages of evaluating a possible offer”.
StanChart shares were trading at 685p as of 1035 GMT on January 10, compared with 662p before Bloomberg reported.
Edited by George Hay and Streisand Neto
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Opinions expressed are those of the authors. They do not reflect the views of Reuters, which, in accordance with principles of trust, is committed to integrity, independence and non-bias.
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