Standard neatly slots AEB into its global operations

Standard Chartered is looking to leapfrog years of organic growth in its nascent private banking arm with the £1.1bn (?1.6bn) acquisition of American Express Bank (AEB) from the American Express Company. The deal also doubles in size Standard Chartered’s clearing business, adding direct euro and yen clearing capability and cross-selling opportunities, according to a statement accompanying the merger announcement. It also bolsters Standard Chartered’s Financial Institutions transaction banking arm, which is a key factor in the sale, according to Ray Soudah, founder of Millennium Associates, the M&A advisory boutique. “I think it’s naïve to see this as a private banking transaction, it’s a two-business transaction,” he says. “Most people will see this as a private banking transaction, but it is substantially not that.” Partner search AEB has been on the market for some six months, Mr Soudah says, but the added burden – or benefit – of the extra business unit has meant that it was not a good fit for many of the other players in the private banking space, who would have been unable to absorb the correspondent banking side. “The suitability of this to other private banks was not evident when you include the correspondent banking business. Therefore, from the business point of view, AEB needed a party that could accommodate the private banking and transaction banking services,” adds Mr Soudah. “So I think the fit, intellectually, is quite logical. “If I had to comment on whether it’s a good deal for Standard Chartered, I’d say yes, it is a good deal at this time, given the rarity factor and the business strategy, how it responded to the availability of that bank.” While AEB was profitable, Mr Soudah believes that this could derive principally from the transaction services side, rather than the private bank. “It’s like buying a horse with a famous jockey on it – are you paying for the horse or are you paying for the jockey? You can’t split the price,” he says. “The real issue is,” Mr Soudah believes, “why did [Amex] sell it?” “For several years American Express has tried to focus on its core business, and shed a couple of areas it doesn’t feel that it can grow to a sufficiently big size to be profitable,” explains Alois Pirker, senior analyst at Boston-based consultancy Aite Group. Amex has demonstrated, by giving up its distribution operations when it spun off Ameriprise, its brokerage arm, in 2005, that it is returning to its core focus of cards and its expense management business. AEB’s private banking operations, which are focused in emerging markets, with valuable branch licences in India and Taiwan, were strategic opportunities, but non-core. According to Mr Pirker, markets such as India are “in the process of taking off as we speak, and you need to have real commitment on the ground in order to push into that market, to build that infrastructure, to hire the advisers and to rightsize your strategy in order to really capture those assets. And you can’t do that half-heartedly, you need to really embrace these opportunities.” These are opportunities that lie within Standard Chartered’s “sweet spot”, Mr Pirker believes. The bank has a solid brand in Asia, and should be able to leverage its investment banking operations to provide leads for its new wealth management business. From a systems perspective, it should also find itself well-placed to make use of its existing infrastructure. “Standard Chartered is a very international operation,” Mr Pirker adds. “So its systems are laid out in a way that you can add countries and scale quite easily.” Emerging rivals Mr Pirker does warn, however, that the bank will need to continue to invest, as more players look for access to the emerging wealthy class in Asia. “You see a lot of firms getting into those markets,” he says. “Morgan Stanley has just got a merchant banking license for India. Right now we see many other institutions lined up in India ready to capture the increasing wealth of the middle class. “I think there is a certain level of concentration going on in the market, and if you don’t have the strategic focus to go into the market and really push for scale, you are kind of wasting money.” India, says Mr Pirker, “is such a large country, it doesn’t help to say, ‘you know, we’ve a tiny operation on the ground and let’s hope for the best’. “You really have to have a strategy in place to become a player in that area, rather than just one of the many that are there.” Apart from its official announcement, Standard Chartered would not discuss the deal.