First Abu Dhabi Bank PJSC explored offer for Standard Chartered

A deal would create a bank with over $1 trn of assets; FAB has been assessing a deal for over 6 months

First Abu Dhabi Bank PJSC said it was reviewing a potential bid for Standard Chartered Plc, which would have been a complex deal aimed at building an emerging markets lender with more than $1 trillion in assets.
 
The Middle East’s largest bank was previously in the “very early stages of evaluating a potential bid for Standard Chartered,” but is no longer doing so, according to a regulatory filing filed on Thursday. Bloomberg News reported earlier Thursday that FAB has been rating Standard Chartered for more than six months as it considers a potential bid for the London-based lender.
 
Abu Dhabi Bank had considered a full takeover of the London-based lender, according to people familiar with the matter. FAB, as the bank is known, has been working with advisers although no formal approach has been made, people said, declining to be identified as the consultations are private.
 
The Gulf lender is also considering other deal structures, such as acquiring parts of the UK-based company, one of the people said. Any deal faces significant hurdles given the complexity of the transaction, they said. A Standard Chartered representative declined to comment.
 
Standard Chartered shares rose as much as 21% on reported takeover interest before giving up most of those gains to trade 5.7% higher as of 2:05 p.m. in London.

 
Such a deal would be the largest foreign takeover by a company in the Gulf region and one of the largest banking mergers in the past decade. Standard Chartered is valued at approximately $23.1 billion compared to FAB’s valuation of $51.9 billion.
 
With oil prices hitting their highest since 2008, Middle Eastern investors from Abu Dhabi, Saudi Arabia and Qatar, cash-rich from last year’s commodity boom, are looking for opportunities.
 
Meanwhile, a weak pound and a struggling economy are leaving British companies vulnerable to bids. Still, any takeover would be complicated due to the difference in size and size of the two banks. The richest in the world FAB is about half-owned by Abu Dhabi-based sovereign wealth fund Mubadala Investment Co. and members of the emirate’s ruling Al Nahyan family — the world’s wealthiest at $300 billion. With debt markets largely closed elsewhere and concerns of a global recession weighing on asset prices, Gulf sovereign wealth funds have been involved in some of the biggest takeover deals recently.
 
FAB has built a lucrative investment banking business over the past few years, amassing approximately $312 billion in assets at the end of September. This compares to Standard Chartered’s $864 billion. With assets of about $1.18 trillion, the merged lender would be about a third the size of HSBC Holdings Plc — Standard Chartered’s historic rival.
 
With Standard Chartered classified as a global systemically important bank, unlike FAB, the Abu Dhabi lender would have to go through a particularly rigorous approval process, including seeking the green light from multiple regulators, to close a deal. Another issue could be the large capital buffer regulators may require from FAB, which could mean the bank would have to raise additional funds.
 
FAB was formed in 2016 when Abu Dhabi merged its two largest lenders – National Bank of Abu Dhabi PJSC and First Gulf Bank PJSC. This merger was seen as a precursor to more deals in the UAE’s financial services industry, where dozens of lenders compete in a market of around 9 million people.
 
FAB bought Bank Audi’s Egyptian unit in 2021 but has made no other significant acquisitions. Last year it withdrew a multi-billion dollar bid for investment bank EFG-Hermes after lengthy regulatory delays in Egypt.
 
Although Standard Chartered is headquartered in London, Standard Chartered derives the majority of its revenue and profits from Asia, the Middle East and Africa. The bank’s largest single market is Hong Kong, where the economy has been hit by protracted pandemic restrictions that have curtailed business. It also has major hubs in Singapore and Dubai.
 
After struggling with historic misconduct and bad debt problems, the bank has long been seen as a potential takeover target for US and Asian-based banks, given its network in some 60 countries. Since Bill Winters took over as CEO in mid-2015, the shares have lost around a third of their value.
 
At a conference in 2021, Winters said he was unconcerned about the prospects of a takeover bid and that the bank was a “complicated beast” that few would want to buy.
 
“I don’t feel very vulnerable, but just as if there’s a very valuable combination out there and someone wants to try it and explain to our shareholders why they’re better off in combination than staying with us alone, be my guest ‘ he said at the time.

New hubs

In recent years, Standard Chartered has withdrawn from select countries in Africa and the Middle East to focus on faster growing markets in those regions. In 2019, the company announced it was creating two new hubs for its Asian operations in Singapore and Hong Kong to downsize its network and reduce costs.

FAB’s recent interest in Standard Chartered isn’t the first time the bank has attracted a potential suitor. In 1986, the lender fended off a takeover by Lloyds Bank, then took in the late Singaporean billionaire Khoo Teck Puat as its largest shareholder. In 2006, Khoo’s family sold their stake to Singapore state-owned investment firm Temasek Holdings, which remains a key investor.

European banks have long been accustomed to supporting wealthy Middle Eastern investors. Saudi National Bank will become one of Credit Suisse Group AG’s largest shareholders following an investment late last year. The ailing Swiss lender already lists Saudi conglomerate Olayan Group and the Qatar Investment Authority among its top investors. Some funds in the region also stepped in to invest billions in lenders during the 2008 financial crisis, including Barclays Plc, Credit Suisse and Citigroup Inc.

StanC becomes 1st foreign bank to trade bond futures in China

Standard Chartered’s China unit said it had become the first foreign bank to trade treasury bond futures in the country which is deregulating capital markets. The move comes as China steps up efforts to draw global investors amid months of foreign money outflows from its $20-trillion bond market. In a statement on Wednesday, Standard Chartered Bank said it had completed its first treasury bond futures transaction in China, with the permission of regulators. Treasury bond futures are a key tool to manage interest rate risks, and China's opening-up of the market will allow foreign investors to better participate in its onshore bond market and promote yuan internationalisation, the bank said.

“We believe that the depth and breadth of global investors’ participation in China’s capital market will continue to increase” as more comprehensive risk management tools become available, its Asia chief executive officer Benjamin Hung said. Overseas institutional investors had dumped a net 740 billion yuan ($107.48 billion) worth of Chinese bonds during a 10-month streak of outflows. 

Foreign holdings of yuan-denominated bonds traded on China's interbank market stood at 3.33 trillion yuan at end-November, less than 3 per cent of the total market size. Standard Chartered’s bond futures trading comes nearly three years after China in early 2020 freed up banks and insurers to participate in the market for the first time, selecting its top five banks for an initial pilot scheme. 

"China's unwavering efforts towards expanding its opening-up, especially the continuous opening-up of the financial markets at a high standard, provides tremendous opportunities for Standard Chartered," said Jerry Zhang, vice chairman of the China unit.

In February 2022, Standard Chartered said it would invest $300 million in China-related businesses over the next three years and double the relevant profit contribution by end-2024.

                                                                                                                                                              Reuters