In November, the world’s tallest tower, Dubai’s Burj Khalifa, was lit up with the colours and logo of Standard Chartered.
As the bank’s chief executive Bill Winters and chair José Viñals looked on, messages such as “together we’re here for good” and “aligned ambitions” sparked into life.
While in Dubai, the two executives held a full board meeting and met senior figures in the region. But two months later they were blindsided when news broke that First Abu Dhabi Bank, the UAE’s biggest lender, wanted to buy Standard Chartered.
“It was a complete surprise to the board,” said one person familiar with the matter.
However, it was no secret that the oil-rich Emirates was in an acquisitive mood.
First Abu Dhabi Bank, or FAB, was born in 2017 when the UAE merged its first- and third-largest lenders to create a national champion. But the scale of its international ambitions was only revealed alongside news it had been working for almost a year to buy StanChart and create a lender with more than $1tn in assets operating in more than 60 markets — a first for the Middle East.
“The region is saying ‘here we are’. The centre of the world has moved,” said one senior figure who advises FAB. “They see themselves as a major centre of activity and not just oil economies.”
“The banking sector is absolutely ripe for the next step up,” said Gary Dugan, chief investment officer at Dubai-based Dalma Capital and a former executive of FAB’s predecessor, the National Bank of Abu Dhabi.
After the news leaked, FAB quickly said it was no longer evaluating an offer, kicking off a six-month period where they are restricted from acting again, unless another bidder emerges.
But several people close to the lender say the deal could be revived after the cooling off period ends in July. FAB and StanChart declined to comment.
“The region certainly has the firepower to make a statement in this regard. We deserve to be taken more seriously,” said a government minister from another country in the Gulf.
Companies and funds in the UAE, Saudi Arabia and Qatar have more than $3tn in assets and cash under management, boosted by a boom in energy prices amid the war in Ukraine. Saudi Arabia’s $620bn Public Investment Fund has bought companies from electric vehicle start-up Lucid to Newcastle United football club as Crown Prince Mohammed bin Salman looks to diversify the economy away from oil.
But cross-border banking takeovers are very rare because of the cost, complexity and risk involved. Previously Middle Eastern investors have preferred to take stakes in troubled foreign lenders.
Qatari funds led an £11.8bn emergency fundraising for Barclays in 2008 and Middle Eastern investors now own a fifth of Credit Suisse.
Demonstrating the scale of capital that can be brought to bear, the Saudi National Bank’s chair dismissed its recent $1.5bn investment in Credit Suisse as “just another cheque”, barely more than 2 per cent of its $68.7bn investment portfolio.
“It’s a 166-year-old brand, so how far below 30 cents on the dollar is it going to go?” he added.
StanChart, 169 years old, trades barely higher at 42 pence on the pound.
FAB is also deep-pocketed and intrinsically linked to the state. Its chair is the UAE’s national security 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 investment fund Mubadala owns 38 per cent of FAB and was a driving force behind the attempt for StanChart, according to people familiar with the process. Mubadala said it would not comment on marketplace rumours about publicly listed institutions.
FAB’s stock has surged 72 per cent since the pandemic struck in March 2020, giving it a market value of $43bn, almost double that of StanChart at $25bn.
While dominant domestically, FAB’s international network is modest. More than three-quarters of its revenue is made in the UAE and to grow it must diversify.
In 2021, FAB bought the Egyptian operations of Lebanese bank Audi. Then last February, it grew bolder, making an offer for Egypt-based regional broker and adviser EFG-Hermes to bolster its weak investment banking arm.
Advisers say the bid was withdrawn a couple of months later amid Egyptian resistance. But disappointment was brushed aside as FAB turned its attention towards StanChart, several people involved in the process told the Financial Times.
Early last year chief executive Hana Al Rostamani hired New York boutique investment bank Moelis & Co to help identify and analyse transformational targets, said the people. StanChart was top of the list.
Its founder Ken Moelis — once dubbed ‘Ken of Arabia’ for his connections in the region — helped pitch and explain the rationale to the government officials and technocrats who would have to sanction any offer.
StanChart offered an immediate expansion outside its saturated home market into Africa, India, south-east Asia and China, as well as exposure to Europe and the US. With FAB trading at two times’ book value to StanChart’s 0.4 times, it was also seen as affordable, the people added.
Performance at StanChart has lagged peers. Winters, who took over in 2015, had overseen an operating income decline while competitors in key markets, such as DBS in Singapore, had grown. Despite announcing several cost-cutting programmes, expenses remain roughly the same as in 2015.
Various other targets were discussed, such as Barclays and BNP Paribas, the people added. Acquiring a series of smaller lenders was considered, but that was discarded because it would have been “a long arduous process with no certainty of success and huge integration challenges”, another person involved said.
In the early summer, the board gave the green light to an all-cash bid of £30bn-£32bn aimed at minimising opposition from StanChart.
FAB’s deal team was pushing but some government entities demanded further due diligence on the transaction in the early autumn, one adviser said. FAB would have had to rely on financing from funds such as state-owned ADQ, which is also chaired by Sheikh Tahnoon, and crucially Mubadala, the adviser added. ADQ and Mubadala declined to comment.
Backing could also come from $240bn Abu Dhabi-listed conglomerate International Holding Company — another business that Tahnoon chairs, one of the people said. IHC declined to comment.
Citigroup, Bain, Deloitte and Linklaters were brought in to enhance operational capacity and conduct studies around synergies, audit and legal issues.
Neither FAB nor its advisers approached any shareholders or the board, or StanChart’s corporate brokers JPMorgan or Goldman Sachs.
In the end, it did not matter. Due diligence on the deal had not been completed before the news leaked — something the phalanx of advisers had made inevitable. “Too many cooks spoiled the unready broth,” one of the advisers added.
FAB is considering several options when the cooling off period ends, two of the people involved told the Financial Times.
It could choose to approach existing large StanChart shareholders and ask them to retain substantial stakes in the expanded group, making the $30bn to $40bn cost easier to digest.
One top-10 shareholder told the FT that a cash offer of a third above the trading price would mean “an argument” internally about whether to take it.
“We think the bank is trading at a massive discount,” the person said. “It would be tempting to take it, but we would feel we would be giving away a lot of value.”
By far the most important shareholder would be Singapore’s state-owned investment fund Temasek, which owns 16.4 per cent of the stock. A cash offer would allow the fund to exit after having built its stake at a higher valuation, but any deal would also face political ramifications given the expected exodus of thousands of StanChart roles from Singapore to the UAE’s capital.
Temasek said it did not comment on market speculation but people briefed on the fund’s thinking said it could consider selling part or all of its stake if another, higher, bid came in. They added that it would be a purely commercial decision.
FAB could also try for a friendly transaction; however, there is a risk that this would lead to a bidding war as the board would be duty bound to seek rival offers.
The main hurdle to any transaction remains the need to gain approval from scores of regulators. The trickiest might be the US, which would have to allow the fifth-largest dollar-clearing bank to be regulated by the central bank of the UAE, itself under enhanced scrutiny by the world’s anti-money laundering watchdog.
Another question is whether FAB’s executive team would be deemed experienced enough to lead a global systemically important financial institution, leading to the prospect of the existing StanChart management being asked to remain in place, said a senior figure at StanChart.
Winters and Viñals both said at the recent World Economic Forum in Davos that they had not spoken to FAB since the news broke.
“This is not something we’ve either engaged with, or been interested in,” Winters said.
The top 10 shareholder suggested Winters still wants to turn the bank around himself, something that has become easier to accomplish as rates rise and China’s zero-Covid policy ends.
“Winters doesn’t want his reputation to be tarnished,” the person said.
Afraid of being taken unawares again, StanChart executives are scouring the UAE for intelligence on Abu Dhabi’s intentions. But they also realise that FAB’s approach could flush out other suitors.
“Now the interest is public, it has opened Pandora’s box,” said a senior Middle Eastern banker at a rival. “If it isn’t FAB, it will be someone else.”
Additional reporting by Mercedes Ruehl