Standard Chartered still attractive to possible buyers

Reuters

• $2.39bn profit in H1 2023
• More than half of income from Asia
• First Abu Dhabi dropped potential bid

Standard Chartered will remain in the sights of cash-rich potential buyers thanks to the bank’s relatively cheap valuation and hard-to-replicate footprint, analysts told AGBI.

It is listed and headquartered in London, yet 87 percent of its half-year income was derived from Asia, the Middle East and Africa.

Over the past decade, Standard Chartered has sold significant portions of its balance sheet. Since April 2022 alone, it has struck deals for subsidiaries in Lebanon, Jordan, Angola, Cameroon, The Gambia, Sierra Leone and Tanzania.

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In August a company owned by Saudi Arabia’s Public Investment Fund agreed to buy Standard Chartered’s aviation leasing unit for $700 million.

“Standard Chartered has focused on moving more into wealth management and tilting more towards China and wealth creation in the surrounding region,” said Fahed Kunwar, head of banks and fintech equity research at Redburn Atlantic in London.

“Any asset that doesn’t quite fit into that mantra is potentially up for sale. Also, there may be assets that do fit fine, but in someone else’s hands might be more valuable – the aviation leasing business is a great example of that.”

Yet the biggest prize remains Standard Chartered itself, which made a net profit attributable to equity holders of $2.39 billion in the first half of 2023, up 14 percent year on year, as net interest income rose by one-third.

A daunting purchase

On January 5, First Abu Dhabi announced it was no longer considering a bid for Standard Chartered. The government-backed lender reiterated its position in a further statement on February 10, although the text of its announcement allows for it to make an offer should certain circumstances arise.

First Abu Dhabi did not respond to requests to comment to AGBI.

There are historical connections between the two banks. Alex Thursby was chief executive of National Bank of Abu Dhabi, which merged with First Gulf Bank to become First Abu Dhabi, from 2013 to 2016, and worked for Standard Chartered from 1987 to 2007.

“A very important question is whether it suits Standard Chartered to be listed in the West when it is largely an Asian bank,” said Kunwar. “It’s feasible that more bids will arrive – it’s an incredibly attractive bank, with a remarkable footprint that’s very hard to recreate.”

Yet assuming control of Standard Chartered, which has operations in more than 50 countries, could be daunting to potential buyers such as First Abu Dhabi, which has a vastly smaller footprint and a loan book that is 82 percent domestic.

In contrast, 23 percent of Standard Chartered’s income came from Hong Kong in the first half of 2023, 14 percent from Singapore, 7 percent from each of India, China and South Korea, and 5 percent from both the US and UAE. “Others” provided 27 percent.

A “reason why it’s attractive to potential bidders is because of its geographical footprint”, said Perlie Mong, a banking analyst at KBW in London. “Yet that’s also why it is so difficult to acquire the bank because you need to pass so many regulatory hurdles.”

Standard Chartered is also among the 10 largest dollar clearance houses worldwide, she noted.

“So, a buyer would need approval from the Hong Kong, Chinese and US authorities, among numerous others, which wouldn’t be straightforward.”

A renewed takeover attempt would likely be “share price positive” for existing shareholders, although whether a buyer would deliver additional returns in the long term would depend on the acquirer’s strategy, said Mong.

Standard Chartered’s stock ended Wednesday at 722.6 pence, trading at a price-to-earnings ratio of 9.4 according to Yahoo Finance.

“Its share price, like most European banks, is trading at a serious discount,” said Kunwar. “The market is sceptical about its ability to grow at the kind of pace it would like. So, anyone who can unlock that value, in my opinion minority shareholders would be perfectly happy with that.”

Strengthening trade ties and partnerships between China and the Gulf could be another factor in Abu Dhabi’s interest in Standard Chartered, said Mong: “So, if you believe that’s where economic growth will be strong, its potentially attractive.”

Mong has a sell recommendation and a price target of 790 pence for Standard Chartered. Redburn’s Kunwar, meanwhile, has a neutral rating due to his concerns that it may be over-exposed to China as its economy slows and the benefit from US rate rises moderate.