In the latest of a wave of hostile takeover bids, emerging markets bank Standard Chartered is fresh meat — and investors, including JPMorgan Chase, are said hungry.
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With an eye on expansion into the Far East — one of StanChart’s biggest markets — JPMorgan is rumored to have its sights on buying out the bank.The estimated price tag? In the realm of $79 billion. But is the bank’s pledge to raise $5.3 billion ahead of Basel-III rules a clear sign that this stand is “not for sale?”
"What the rights issue is about," StanChart CFO Richard Meddings told me in a first-time interview on CNBC’s “Worldwide Exchange,” is safeguarding StanChart’s “ability to serve our customers in markets which are very strongly growing." In other words, "no comment," but I had to ask, of course.
He said that the rights issue is done from “a position of strength” following a Q3 trading update “which continues to build on the last seven years of record profit and record income.” In an announcement earlier this week, the bank said its trade volumes are almost back to pre-crisis levels.
Analysts have predicted that should JPMorgan make a move, rival banks including HSBC might be encouraged to throw their hats into the ring. But others argue that $79 billion is too hefty a price tag for even the largest banks when we’re still not in the clear from the recession.
Amid the takeover rumors, shares in StanChart rose 2.1% yesterday, and are expected to continue to climb as the week goes on.
StanChart celebrated a record half-year profit of $3.12 billion in August, as key markets in Asia, where the company makes about four-fifths of its profit, showed strong performance. According to Reuters, StanChart has been involved in underwriting some big deals in Asia for Bharti Airtel, Vedanta Resources and BHP Billiton.
However, post announcement of Basel-III rules, in which banks must increase the amount of top-quality capital that they hold in reserve, StanChart followed suit to ramp up its finances ahead of the introduction of new global capital rules, which will be phased in starting in 2019.
“The main purpose is to do two things,” said Meddings in response to the question of playing defense against the full impact of Basel-III. “To anticipate regulatory changes – the evolving Basel-III regime — but at the same time it continues to safeguard the GRP’s ability to grow business strongly.”
Some have said that Basel-III will hamper banks with more cross-border activity, but Meddings doesn’t see this as a particularly cross-border issue. He said that the real hindrance is that “the regulatory environment is toughening up.” He said that the last thing the company would want to do is to constrain growth because of emerging increases in the capital regime.
StanChart is already in 70 countries, and Meddings said that any further growth would be “organic.”
"Acquisition plays a secondary role,” he said. "The rights issue is not aimed at M&A," he said, although he added that, “We do make small capability acquisitions in the $100 -200 million size and I’m sure we’ll continue to do that.”
This organic growth will likely continue to be in emerging markets as StanChart creates out a “wide geographical footprint in the part of the world that’s demonstrating good momentum,” said Meddings. Especially important among this spread are China, India and Africa.
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Companies mentioned in this post
Bharti Airtel
Vendanta Rersources
BHP Billiton
JPMorgan Chase
Standard Chartered
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