Why is First Abu Dhabi’s StanChart back on the table?

The news that First Abu Dhabi Bank is reconsidering its move to Standard Chartered tells us two things. First, valuation and business size dynamics are very favorable for the UAE-based bank. Second, they must have adapted to an extremely difficult challenge: regulatory approval.

as Euromoney wrote on Jan 9, From FAB’s point of view, the idea of ​​an acquisition makes a lot of sense.During his time at the National Bank of Abu Dhabi, under different CEOs, most notably the ex-Standard Chartered man alex thursbywhich articulates a strategy to become a powerhouse in emerging markets, a vision Standard Chartered will immediately realize.

(FAB was formed from the 2017 merger of NBAD and First Gulf Bank.)

But the two banks have completely different valuations, making it possible for FAB to acquire a bank with twice the loan and deposit base. FAB is trading at double tangible book value, while StanChart is trading at half that.

In any case, Standard Chartered is a bigger business in terms of business scope, but its market capitalization is 26.6 billion US dollars. FAB is now $43 billion.

Also, while StanChart’s bookkeeping currency is USD, it is headquartered in the UK and its London listing is of course denominated in GBP, while FAB is denominated in USD-pegged dirhams. While the pound is in better shape than before, today it bought at $1.21; in 2014, it bought at $1.71.

Dirhams at FAB correspondingly buy more pounds than before.

Add to that FAB’s balance sheet and the strength of its backers — who include sovereign wealth fund Mubadala, and Abu Dhabi’s royal family — and the rumored all-cash bid is at $30 billion to $35 billion, according to Bloomberg. between.

Seeking the support of the state is much easier when the chairman, Sheikh Tanu bin Zayed Al Nahyan, is himself a member of the royal family.

But all of these things were known when FAB took a first look at StanChart and chose not to bid. So, what has changed?

It was widely believed in January that FAB was delayed by the regulatory approvals involved in taking over a bank with operations in 59 countries. Can FAB get assurances from the main market that would make this deal possible?

What is the attitude of the major shareholders of Standard Chartered? Temasek?

Needing to win over Singapore’s sovereign vehicle, we believe such a move could be contrary to Singapore’s best interests as a financial services hub given that many of Standard Chartered’s professionals are employed in the city-state.

Has the FAB been instructed that Temasek can be taken aside? Temasek has been a loyal, sometimes long-suffering shareholder in the bank, and may think its investment will more attractively fulfill its potential under UAE ownership.

Rising oil prices are also a factor. West Texas Intermediate crude traded at $78.38 a barrel today, up from a 2021 low of $47.62 and an extraordinary 2020 figure of $11.26. This makes it easier for the UAE to deploy capital to realize its longstanding ambition to diversify into hydrocarbons, through various means, including making Abu Dhabi a financial center with a truly global bank.

If Bloomberg’s sources are correct that the delisting and relocation to Abu Dhabi is part of the plan, it would also be of considerable interest in Hong Kong, where Standard Chartered is not only listed but also a note-issuing bank . That certainly doesn’t excite the London Stock Exchange.

There’s still a lot to do before a formal bid is made, let alone a successful one. But whatever the outcome, the Gulf state’s ambitions in the global banking landscape are escalating.

It is one thing for QIA to take a minority stake in Barclays or Credit Suisse; a state-owned Emirati bank taking over the entirety of Standard Chartered would completely change that.