[ad_1]
In November, the Burj Khalifa in Dubai, the tallest tower in the world, was lit up in the colors and logo of Standard Chartered Bank.
Messages like “we’re better together” and “like-minded people” sparkle in life as the bank’s chief executive, Bill Winters, and chairman, Jose Vinals, look on.
While in Dubai, the two executives held an all-board meeting and met with top figures in the region.But two months later, when news broke that First Abu Dhabi Bank, the largest bank in the UAE, wanted to buy Standard Chartered Bank.
“It was a complete surprise to the board,” said a person familiar with the matter.
It’s no secret, however, that the oil-rich emirate is in a takeover mood.
First Abu Dhabi Bank (FAB) was born in 2017 when the UAE merged its first and third largest banks to create a national champion. But the scale of its international ambitions comes only after news that it has been working for almost a year to buy Standard Chartered and create a bank with assets of more than $1 trillion with operations in more than 60 markets – the largest in the Middle East. This is the first time.
“The region is saying ‘here we are.’ The center of the world has moved,” said a veteran who advises FAB. “They see themselves as major centers of activity, not just oil economies.”
“The banking industry is absolutely ripe for the next step,” said Gary Duggan, chief investment officer at Dubai-based Dalma Capital and a former executive at FAB’s predecessor National Bank of Abu Dhabi.
After the news leaked, FAB quickly say It no longer evaluates offers, starting a six-month period in which they are not allowed to act again unless another bidder emerges.
But several people close to the bank said the deal could restart after a cooling-off period ends in July. FAB and Standard Chartered declined to comment.
“The region is certainly capable of making a statement in this regard. We should be taken more seriously,” said a government minister from another Gulf state.
Companies and funds in the United Arab Emirates, Saudi Arabia and Qatar manage more than $3 trillion in assets and cash, fueled by a surge in energy prices during the Ukraine war. Saudi Arabia’s $620 billion public investment fund has snapped up companies ranging from electric car startup Lucid to Newcastle United football club as Crown Prince Mohammed bin Salman looks to diversify the economy away from oil.
But cross-border bank acquisitions are rare because of the costs, complexities and risks involved. Previously, Middle Eastern investors preferred to take stakes in struggling foreign banks.
In 2008, Qatari funds led a £11.8bn emergency fund for Barclays, and the Middle Eastern investor now owns a fifth of Credit Suisse.
The head of the National Bank of Saudi Arabia demonstrates the size of capital it can afford, dismissing its recent $1.5 billion investment in Credit Suisse as “Just Another Check”accounting for only 2% of its $68.7 billion portfolio.
“It’s a 166-year-old brand, so how far will it fall below 30 cents face value?” he added.
The 169-year-old Standard Chartered is trading at just over 42p a pound.
FAB has deep pockets and is intrinsically linked to the state. Its chairman is Sheikh Tanu bin Zayed Al Nahyan, the UAE’s national security adviser and businessman, whose brother is Sheikh Mohamed bin Zayed, the president and ruler of Abu Dhabi De Al Nahyan.
Mubadala, Abu Dhabi’s $284 billion sovereign investment fund, owns 38 percent of FAB and was behind the acquisition of Standard Chartered, according to people familiar with the matter. Mubadala said it would not comment on market rumors about listed institutions.
Since the pandemic hit in March 2020, FAB’s shares have soared 72%, giving it a market capitalization of $43 billion, almost double Standard Chartered’s $25 billion market capitalization.
Although domestically dominant, FAB’s international network is not large. More than three-quarters of its revenue comes from the UAE, and growth will have to diversify.
In 2021, FAB acquired the Egyptian operations of Lebanese bank Audi. Then last February, it got bolder, making an offer to Egypt-based regional broker and adviser EFG-Hermes to bolster its weak investment banking unit.
The bid was withdrawn after a few months due to resistance from Egypt, the consultants said. But several people involved in the process told the FT that disappointment was pushed aside as FAB turned its attention to Standard Chartered.
Early last year, Chief Executive Hana Al Rostamani hired New York boutique investment bank Moelis & Co to help identify and analyze transformation goals, people familiar with the matter said. StanChart tops the list.
Its founder, Ken Moelis – once known as “Arabian Ken” Because of his connections in the region — helping to pitch and explain the rationale to government officials and technocrats — they would have to approve any proposal.
StanChart offers to immediately expand beyond its saturated home market into Africa, India, Southeast Asia and China, with operations in Europe and the US. Since FAB’s book value is 0.4 times Standard Chartered’s book value, it is also considered affordable, the people added.
Performance at Standard Chartered Bank has lagging behind peers. Winters, who took over in 2015, has seen operating income fall while rivals in key markets such as Singapore’s DBS Bank have grown. Expenditures remained roughly flat compared to 2015, despite various cost-cutting initiatives announced.
Various other targets, such as Barclays and BNP Paribas, were also discussed, the people added. Buying a series of smaller banks was considered but was ultimately dropped because it would be “a long and arduous process with no certainty of success and huge integration challenges,” another person familiar with the matter said.
In early summer, the board approved an all-cash bid of £30bn-£32bn, aimed at minimizing opposition from Standard Chartered.
FAB’s deal team is pushing, but some government entities are asking for further due diligence on the deal in early fall, an adviser said. The adviser added that FAB would have to rely on financing from funds such as state-owned ADQ, which is also chaired by Sheikh Tahnoon and crucially Mubadala. ADQ and Mubadala declined to comment.
Support could also come from Abu Dhabi-listed company worth $240 billion Enterprise Group International Holdings is another company Tahnoon chairs, a person familiar with the matter said. IHC declined to comment.
Citigroup, Bain, Deloitte and Linklaters were brought in to strengthen operational capabilities and conduct research around synergies, audit and legal issues.
Neither FAB nor its advisers had contact with any shareholders or the board, or with JP Morgan or Goldman Sachs, the corporate brokers of Standard Chartered.
In the end, it’s okay. Due diligence on the deal hadn’t been done before the news leaked — an inevitable part of the advisory phalanx. “Too many cooks spoil undercooked broth,” adds one of the consultants.
FAB is considering several options after the cooling-off period ends, two people involved told the Financial Times.
It could choose to approach the existing large StanChart shareholders and ask them to retain a substantial stake in the enlarged group, making the $30bn-40bn cost more easily digestible.
A top 10 shareholder told the FT that a cash offer of more than a third of the deal price would mean an internal “debate” over whether to accept it.
“We think the bank is trading at a significant discount,” the person said. “It’s tempting to take it, but we feel like we’re giving up a lot of value.”
By far the most significant shareholder will be Singapore state investment fund Temasek Holdings, which holds a 16.4 percent stake in the company. A cash bid would allow the fund to exit after increasing its stake at a higher valuation, but any deal would also face political fallout given the expected relocation of thousands of Standard Chartered employees from Singapore to the UAE capital.
Temasek said it did not comment on market speculation, but people familiar with the fund’s thinking said it might consider selling some or all of its stake if another higher bid emerged. It would be a purely commercial decision, they added.
The FAB could also try a friendly deal; however, this has the potential to lead to a bidding war, as the onus is on the board to seek offers from competitors.
The main hurdle to any deal remains the need to gain approval from numerous regulators. The trickiest one may be the United States, which must allow the fifth-largest dollar-clearing bank to be overseen by the UAE Central Bank, which itself is under intense scrutiny by the world’s anti-money-laundering watchdog.
Another question is whether FAB’s executive team is considered experienced enough to lead a global systemically important financial institution, leading to the prospect of existing StanChart management being asked to stay on, a senior StanChart source said.
Both Winters and Viñals said at the recent World Economic Forum in Davos that they had not spoken to FAB since the news broke.
“It’s not something we’re involved in or interested in,” Winters said.
The top 10 shareholder said Winters still wants to get the bank out of trouble, something that has become easier with rising interest rates and the end of China’s zero-virus policy.
“Winters doesn’t want his reputation to be tarnished,” the person said.
Fearful of another surprise, Standard Chartered executives are scouting the UAE for intel on Abu Dhabi’s intentions. But they also realized that FAB’s approach could crowd out other bidders.
“Now that the interests are out in the open, it opens a Pandora’s box,” said a senior Middle Eastern banker at a rival. “If it wasn’t FAB, it would be someone else.”
Additional reporting by Mercedes Ruehl
[ad_2]
Source link