Standard Chartered back in the game as Abu Dhabi bid revealed

Confirmation that First Abu Dhabi is considering tilting towards Standard Chartered raises many interesting questions and thoughts.

The deal didn’t happen — and it won’t now. But on January 5, First Abu Dhabi Bank confirmed that it had “before been in the very early stages of evaluating a possible offer for Standard Chartered.”

Even confirmation that it had considered doing so sent StanChart shares up 8%, suggesting the market believes a takeover is still possible.

Not so long ago, one could count on a Standard Chartered M&A rumor sudden appearance About once a quarter. ANZ? DBS Bank? JPMorgan? Santander? Many institutions have been involved over the years. But not recently.

However, FAB’s news has analysts revisiting the idea.

As Citi analyst Andrew Coombs noted in a Jan. 6 note: “The simple argument for buying Standard Chartered is that it has an attractive footprint in Asia (and Africa) and a cost base relative to the size of its revenues. Inflated, and it continues to trade at lower multiples than its local peers.”

So, in theory, the buyer can expect high-cost synergies, making any deal highly accretive.

The thing about Standard Chartered is everyone knows how good it should be Given the strength of the emerging markets footprint. Banks are part of Asian furniture; from Sri Lanka to Hong Kong, it has been found lodged in large addresses dating back more than a century.

It doesn’t influence the investment banking league tables, but it is a giant in trade finance and commercial banking with unrivaled institutional relationships.

Yet despite Bill Winters’ best efforts for seven years — oh, how he tried — the return on equity hasn’t been where he wants it to be. Accordingly, it trades relatively weakly on most important metrics, including price-to-book (0.6x) and forward price-to-earnings (about six times 2024 estimates).

Put those two things together and you have something that is attractive and theoretically cheap in the long run.

So you can see why FAB is interested.How Great the Opportunities Are on Paper: The Ability to Turn in a Swipe UAE’s largest bank To be a global player, inheriting an institution that has built relationships on the ground in Asia and Africa three times longer than the United Arab Emirates has existed as a sovereign state.

As Jefferies notes, FAB is trading at 2x tangible book value, while StanChart is trading at 0.5 times tangible book value. The deal represented the acquisition of a bank that more than doubled its loans and deposits and increased its tangible assets by 44%. Plus, of course, the pound has lost value while the dirham is pegged to the dollar.

“This situation underscores the appeal of having the right bank assets book at a discount,” Jefferies said.

But beyond the question of the cost base and the sheer complexity of Standard Chartered’s global mix — it operates in about 60 markets, and deals need to seek regulatory approval in all of those markets — there’s also the question of whether any potential buyer You have to ask yourself. Can it convince shareholders? especially one.

Of course, we are referring here to Temasek Holdings, which is the largest single shareholder of Standard Chartered Bank with a 16.4% stake. Although it has no representation on the board, preferring to work behind the scenes, it is an engaged shareholder and in recent years has sought to update the bank and its turnaround strategy more frequently.

It’s not clear whether FAB’s bid will be enough to warrant any response from Temasek, but in Singapore, a question is brewing: Is it possible that Singapore’s state-owned investment firm could block a deal that appears to be off the table? The best interests of the island nation?

We should explain why this problem occurs. Standard Chartered is British in terms of its headquarters, main regulator and primary listing. But its biggest centers in terms of headcount are Hong Kong and Singapore. Many of its top figures, most notably Simon Cooper, global chief executive of corporate, commercial and institutional banking, are based in Singapore.

One would imagine that a possible takeover of Abu Dhabi would present an unsettling prospect for Singapore: one of its largest employers (Standard Chartered with 10,000 employees in Singapore in 2020) being bought by a single company state backed bank Coming from another city that aspires to be a regional financial services hub.

FAB owns 37.9% of the shares exchangea sovereign wealth fund tasked with keeping the emirate of Abu Dhabi away from hydrocarbons, and is held a further 15.7% by the Abu Dhabi ruling family.

What if FAB or a similar acquirer moved most of StanChart’s staff to the Bay Area and made one of the ballparks a regional center?

Temasek is not some dormant utility company. Its investments must first and foremost make money for the country: It has a long track record of acquiring companies from startups to blue chips around the world, with an eye on long-term investment themes rather than local politics.

But it does have a governing effect on the country as well— we have written beforefor example, in supporting the dual purpose of Singapore Airlines’ rights issue during the pandemic – and always keeping an eye on the country’s future.

Any suitor of StanChart needs to understand this mentality.

In any case, the news has the market buzzing. Jefferies said the FAB endorsement had “awakened the notional animal spirits” at Standard Chartered, arguing that Standard Chartered now had an “embedded M&A put option”.

The broker also expects wealth income to recover by 20% once Greater China reopens and weathers Covid, so there is also upside for buyers.

FAB will not be the last name appearing in the frame this year.