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 lender 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.