Temasek tinkering could put StanChart in play
By John Foley
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Could Temasek’s tinkering put Standard Chartered in play? The Singaporean fund’s recent reshuffle of its bank assets has revived talk about its 18 percent stake in the UK-based emerging markets lender. Now might be a good time to find a new owner.
Rival banks have long eyed StanChart. It spans Asia and Africa, but lacks exposure to slow-growing European markets or U.S. subprime mortgages. It’s conservatively run, too: loans were equivalent to just 76 percent of deposits in 2011. Moreover, there are signs Temasek is open to offers. It issued a bond exchangeable into StanChart shares last year. And an old idea of guiding StanChart into a merger with Singapore’s DBS seems to have fizzled; DBS is now chasing other deals, with Temasek’s blessing.
Potential buyers are many. U.S. banks like JPMorgan or Wells Fargo should be attracted to StanChart’s exposure to emerging market trade. Australia’s ANZ and Japan’s Mitsubishi UFJ are aggressively targeting new markets. Even a Latin American aspirant like Brazil’s Banco Itau may take a look.
Leaving aside the potential clash of cultures, not many could pull it off. StanChart’s attractive portfolio – and some bid speculation – mean its shares trade on a higher multiple of book value than most prospective suitors.
Second, local regulators may be chary of allowing already-big banks to expand further. And while StanChart isn’t yet labelled as a globally significant bank, or “G-Sifi”, as part of a bigger lender it probably would be, which would see its return on equity crimped by an additional capital buffer.
Finally, buying a minority stake is a drain on bank capital under new Basel III rules. Snapping up an 18 percent shareholding would be no guarantee that StanChart’s other shareholders would be willing to sell.
The best bet might be a Chinese rival. China’s banks already trade at valuations closer to StanChart’s own. While smaller banks are running out of liquidity, and bad debts are building, the likes of Industrial and Commercial Bank of China are still flush. True, StanChart’s size means any deal would probably involve Temasek swapping its stake for shares in a larger bank. But the Singaporeans’ $2.3 billion investment in ICBC on April 16 suggests that’s a currency they may be willing to consider.