Standard Chartered back in focus

Speculation that Standard Chartered, the Asia-focused bank, might, after decades of independence, be up for grabs after the death at the weekend of one of its largest shareholders drove its shares up 30.5p to 955p yesterday.

Tan Sri Khoo Teck Puat, 86, rated by Forbes as Singapore's richest man, died suddenly on Saturday afternoon, leaving his 14 children a $5bn(£2.7bn) fortune, including just over 13 per cent of Standard Chartered.

The bank, which celebrated its 150th birthday last year, was quick to say it had been given "no indication" from the Khoo family, which includes the high-profile Singapore film-maker Eric Khoo, that they wanted to sell out.

Yet the development has inevitably brought back to centre stage questions about the future of Standard Chartered, and whether other banks, both in the UK and abroad, will allow this rapidly expanding competitor to continue on its path of splendid isolation.

Indeed, there are plenty of both British and foreign lenders that have already tried to woo Standard Chartered in the past. It was Lloyds TSB's attempt to swoop on its more exotic rival in 1986 which led to Mr Khoo's involvement in the first place. He stepped in with two other financiers - Sir YK Pao of Hong Kong and Australian Robert Holmes á Court - to act as white knights, fending off Lloyds by buying 37 per cent of the bank.

Lloyds, which is these days pursuing a more mainstream strategy by shedding its overseas investments to retrench to the UK market, is unlikely to try to revive the old flame. But analysts were quick to point out that Barclays, another long-term suitor, could well re-enter the stage.

Another possible buyer is the American giant Citigroup, which yesterday underlined its interest in being one of the major players in Asia when it bought Koram Bank, one of South Korea's largest banks, for $2.73bn (£1.46bn). Citigroup trounced a rival bid by Standard Chartered for the business.

Also on the list of banks which have sufficiently deep pockets to buy Standard Chartered, valued at £11bn, are Bank of America and JP Morgan Chase in the US, although both have just tied up massive mergers at home. In Britain, HSBC and Royal Bank of Scotland also have the financial fire-power.

The allure of this former colonial outfit, which once catered to Far East expats, is obvious. In recent decades the bank's structure and its markets have undergone a massive transformation.

It is now listed in London, but it has almost no business in the British capital. Instead it has its roots - and more than 10 million customers - in Hong Kong, its largest market, other parts of Asia, Africa and the Middle East.

Almost all of its markets have small middle classes which will, in the not too distant future, explode into literally billions of profitable customers for any lenders which have had the foresight to establish their brands, and their branches, locally.

Gerard Lyons, Standard Chartered's chief economist, pointed out that projections for India and China, two of the bank's biggest targets, paint a picture of a burgeoning class of people who will turn to the services of a bank for everything from mortgages to credit cards.

"We think the proportion of the population that is of a working age will increase by nearly 42 per cent in India by 2020. In China, spending power is growing at a rate of 7 per cent in income per head every year," Mr Lyons said.

While there seems to be an air - albeit among deal-hungry investment bankers - that it is almost inevitable that Standard Chartered will have to sacrifice its independence in the long term, most do not expect it to be hooked by a larger player quite yet.

Michael Trippitt at HSBC, said: "Will Standard Chartered be independent in 10 years? I would say no. In five years? Possibly. Once US domestic consolidation runs its course, consolidation between the US and Europe and elsewhere in the world is an inevitable process."

In the short term, most observers of the company think the Khoo family will probably not be in a rush to rid themselves of their stake. Even if they do want to book the sizeable profit they have made on the shares, it looks unlikely they would sell out to one investor.

One analyst said: "If the family wanted to offload the stake it would probably be through a general share placing with the institutional investors, rather than by selling it to someone who was going to use it as a platform to try to take over the bank."

Standard Chartered might be a very tasty morsel, especially for the revenue-starved banks operating in mature markets. But another problem presenting itself for would-be bidders is that it might be rather hard to swallow. Its potential growth under Mervyn Davies, the Welshman who became chief executive in 2001, is already well-understood in the City, a fact reflected in its share price.

"Standard Chartered would cost three times its book value and you would have to go some to demonstrate where the synergies are and why it is cheaper to buy the business rather than build one up organically in Standard Chartered's markets," Mr Tippett said.

Barclays, for example, might like the idea of combining Standard Chartered's African operations with its own, and might jump at the chance to distribute its investment products generated by Barclays Capital through the smaller bank's Asian business. But a tie-up would still be deeply dilutive of its shares as Standard Chartered trades on a price-earnings multiple of almost twice its own.

Standard Chartered even has its own "poison pill" to protect itself against unwanted offers. One source pointed out: "Many of the licences Standard Chartered has in various parts of the world would lapse if it was taken over and the new owner would have to reapply, which would be a complex process."

Yet the death of Mr Khoo could well mark a step change for the bank. The Malayan-born business magnate had been a stalwart investor in Standard Chartered for 18 years, backing the management against takeover offers, even when its shares collapsed along with the rest of the Asian financial market in the late 1990s. It seems likely that his family will not have such a strong tie to their investment.

At the same time, while analysts praise the taut leadership of the wide-ranging group by Mr Davies, they also say it could do with extra fire-power.

Its brand may be almost unknown in the UK, but it is India's largest foreign bank and in Hong Kong it is one of the three banks charged with issuing the official bank notes.

Goldmans Sachs said in a research note: "The group operates in around 50 countries, with total assets of $120bn - a relatively small average asset size of $2.4bn per country that it operates in. Standard Chartered needs greater scale."

But the possibility of that scale coming through a transforming deal still looks some way off. One investor said: "The trouble is when things are going well, no one wants to pay the price for Standard Chartered. But when they are shaky, no one wants to expose themselves to that level of risk in the Far East. So the bank get its wish of remaining independent for some time yet."