In November, the world’s tallest tower, Dubai’s Burj Khalifa, was lit up with the colors and emblem of Normal Chartered.
Because the financial institution’s chief govt Invoice Winters and chair José Viñals seemed on, messages similar to “collectively we’re right here for good” and “aligned ambitions” sparked into life.
Whereas in Dubai, the 2 executives held a full board assembly and met senior figures within the area. However two months later they have been blindsided when information broke that First Abu Dhabi Financial institution, the UAE’s largest lender, wished to purchase Normal Chartered.
“It was a whole shock to the board,” stated one particular person aware of the matter.
Nonetheless, it was no secret that the oil-rich Emirates was in an acquisitive temper.
First Abu Dhabi Financial institution, or FAB, was born in 2017 when the UAE merged its first- and third-largest lenders to create a nationwide champion. However the scale of its worldwide ambitions was solely revealed alongside information it had been working for nearly a yr to purchase StanChart and create a lender with greater than $1tn in belongings working in additional than 60 markets — a primary for the Center East.
“The area is saying ‘right here we’re’. The centre of the world has moved,” stated one senior determine who advises FAB. “They see themselves as a significant centre of exercise and never simply oil economies.”
“The banking sector is completely ripe for the following step up,” stated Gary Dugan, chief funding officer at Dubai-based Dalma Capital and a former govt of FAB’s predecessor, the Nationwide Financial institution of Abu Dhabi.
After the information leaked, FAB rapidly stated it was not evaluating a suggestion, kicking off a six-month interval the place they’re restricted from appearing once more, until one other bidder emerges.
However a number of folks near the lender say the deal could possibly be revived after the cooling off interval ends in July. FAB and StanChart declined to remark.
“The area definitely has the firepower to make an announcement on this regard. We should be taken extra severely,” stated a authorities minister from one other nation within the Gulf.
Corporations and funds within the UAE, Saudi Arabia and Qatar have greater than $3tn in belongings and money below administration, boosted by a growth in vitality costs amid the battle in Ukraine. Saudi Arabia’s $620bn Public Funding Fund has purchased firms from electrical automobile start-up Lucid to Newcastle United soccer membership as Crown Prince Mohammed bin Salman appears to diversify the economic system away from oil.
However cross-border banking takeovers are very uncommon due to the price, complexity and threat concerned. Beforehand Center Japanese buyers have most well-liked to take stakes in troubled overseas lenders.
Qatari funds led an £11.8bn emergency fundraising for Barclays in 2008 and Center Japanese buyers now personal a fifth of Credit score Suisse.
Demonstrating the size of capital that may be dropped at bear, the Saudi Nationwide Financial institution’s chair dismissed its current $1.5bn funding in Credit score Suisse as “simply one other cheque”, barely greater than 2 per cent of its $68.7bn funding portfolio.
“It’s a 166-year-old model, so how far beneath 30 cents on the greenback is it going to go?” he added.
StanChart, 169 years outdated, trades barely greater at 42 pence on the pound.
FAB can be deep-pocketed and intrinsically linked to the state. Its chair is the UAE’s nationwide safety adviser and businessman, Sheikh Tahnoon bin Zayed al-Nahyan, whose brother is the president and ruler of Abu Dhabi, Sheikh Mohammed bin Zayed al-Nahyan.
Abu Dhabi’s $284bn sovereign funding fund Mubadala owns 38 per cent of FAB and was a driving power behind the try for StanChart, in keeping with folks aware of the method. Mubadala stated it might not touch upon market rumours about publicly listed establishments.
FAB’s inventory has surged 72 per cent because the pandemic struck in March 2020, giving it a market worth of $43bn, nearly double that of StanChart at $25bn.
Whereas dominant domestically, FAB’s worldwide community is modest. Greater than three-quarters of its income is made within the UAE and to develop it should diversify.
In 2021, FAB purchased the Egyptian operations of Lebanese financial institution Audi. Then final February, it grew bolder, making a suggestion for Egypt-based regional dealer and adviser EFG-Hermes to bolster its weak funding banking arm.
Advisers say the bid was withdrawn a few months later amid Egyptian resistance. However disappointment was brushed apart as FAB turned its consideration in the direction of StanChart, a number of folks concerned within the course of informed the Monetary Occasions.
Early final yr chief govt Hana Al Rostamani employed New York boutique funding financial institution Moelis & Co to assist determine and analyse transformational targets, stated the folks. StanChart was high of the listing.
Its founder Ken Moelis — as soon as dubbed ‘Ken of Arabia’ for his connections within the area — helped pitch and clarify the rationale to the federal government officers and technocrats who must sanction any supply.
StanChart provided a right away growth outdoors its saturated residence market into Africa, India, south-east Asia and China, in addition to publicity to Europe and the US. With FAB buying and selling at two occasions’ e-book worth to StanChart’s 0.4 occasions, it was additionally seen as inexpensive, the folks added.
Efficiency at StanChart has lagged friends. Winters, who took over in 2015, had overseen an working revenue decline whereas rivals in key markets, similar to DBS in Singapore, had grown. Regardless of saying a number of cost-cutting programmes, bills stay roughly the identical as in 2015.
Numerous different targets have been mentioned, similar to Barclays and BNP Paribas, the folks added. Buying a sequence of smaller lenders was thought of, however that was discarded as a result of it might have been “a protracted arduous course of with no certainty of success and large integration challenges”, one other particular person concerned stated.
Within the early summer season, the board gave the inexperienced gentle to an all-cash bid of £30bn-£32bn aimed toward minimising opposition from StanChart.
FAB’s deal group was pushing however some authorities entities demanded additional due diligence on the transaction within the early autumn, one adviser stated. FAB would have needed to depend on financing from funds similar to state-owned ADQ, which can be chaired by Sheikh Tahnoon, and crucially Mubadala, the adviser added. ADQ and Mubadala declined to remark.
Backing might additionally come from $240bn Abu Dhabi-listed conglomerate Worldwide Holding Firm — one other enterprise that Tahnoon chairs, one of many folks stated. IHC declined to remark.
Citigroup, Bain, Deloitte and Linklaters have been introduced in to reinforce operational capability and conduct research round synergies, audit and authorized points.
Neither FAB nor its advisers approached any shareholders or the board, or StanChart’s company brokers JPMorgan or Goldman Sachs.
Ultimately, it didn’t matter. Due diligence on the deal had not been accomplished earlier than the information leaked — one thing the phalanx of advisers had made inevitable. “Too many cooks spoiled the unready broth,” one of many advisers added.
FAB is contemplating a number of choices when the cooling off interval ends, two of the folks concerned informed the Monetary Occasions.
It might select to strategy present massive StanChart shareholders and ask them to retain substantial stakes within the expanded group, making the $30bn to $40bn value simpler to digest.
One top-10 shareholder informed the FT {that a} money supply of a 3rd above the buying and selling value would imply “an argument” internally about whether or not to take it.
“We expect the financial institution is buying and selling at a large low cost,” the particular person stated. “It could be tempting to take it, however we might really feel we might be freely giving quite a lot of worth.”
By far crucial shareholder could be Singapore’s state-owned funding fund Temasek, which owns 16.4 per cent of the inventory. A money supply would enable the fund to exit after having constructed its stake at the next valuation, however any deal would additionally face political ramifications given the anticipated exodus of 1000’s of StanChart roles from Singapore to the UAE’s capital.
Temasek stated it didn’t touch upon market hypothesis however folks briefed on the fund’s considering stated it might contemplate promoting half or all of its stake if one other, greater, bid got here in. They added that it might be a purely industrial resolution.
FAB might additionally attempt for a pleasant transaction; nonetheless, there’s a threat that this might result in a bidding battle because the board could be obligation sure to hunt rival affords.
The principle hurdle to any transaction stays the necessity to acquire approval from scores of regulators. The trickiest is likely to be the US, which must enable the fifth-largest dollar-clearing financial institution to be regulated by the central financial institution of the UAE, itself below enhanced scrutiny by the world’s anti-money laundering watchdog.
One other query is whether or not FAB’s govt group could be deemed skilled sufficient to guide a world systemically vital monetary establishment, resulting in the prospect of the present StanChart administration being requested to stay in place, stated a senior determine at StanChart.
Winters and Viñals each stated on the current World Financial Discussion board in Davos that that they had not spoken to FAB because the information broke.
“This isn’t one thing we’ve both engaged with, or been considering,” Winters stated.
The highest 10 shareholder recommended Winters nonetheless desires to show the financial institution round himself, one thing that has turn into simpler to perform as charges rise and China’s zero-Covid coverage ends.
“Winters doesn’t need his fame to be tarnished,” the particular person stated.
Afraid of being taken unawares once more, StanChart executives are scouring the UAE for intelligence on Abu Dhabi’s intentions. However in addition they realise that FAB’s strategy might flush out different suitors.
“Now the curiosity is public, it has opened Pandora’s field,” stated a senior Center Japanese banker at a rival. “If it isn’t FAB, will probably be another person.”
Further reporting by Mercedes Ruehl
