StanChart Could Be Sold If Winters Revamp Stalls, Analysts Say

  • Bank of America sees merger potential given lack of scale
  • Basel III finalization, Trump may encourage bank mergers

Standard Chartered Plc could be put up for sale should plans by Chief Executive Officer Bill Winters to restore profitability falter, according to Bank of America Merrill Lynch, which upgraded the Asia-focused bank to a buy.

“We believe it would be an option available to management and the board to consider” if Standard Chartered struggles to compete, analysts led by Alastair Ryan wrote in a note to clients on Tuesday, upgrading the bank from neutral. “Management will seek to pull levers organically, but further cost cuts are not a natural option -– the value of the group is in the network, which we believe to now be fairly costed. Therefore, in our view, a sale remains a possibility.”

Incoming U.S. President Donald Trump’s administration may be more friendly to global bank mergers, and dealmaking may be encouraged as Basel III rules are finalized, removing uncertainty about capital levels, the analysts wrote. They didn’t name any potential merger partners.

Standard Chartered shares gained as much as 8.3 percent in London trading and were up 4.7 percent, second-most in the benchmark FTSE 100 Index, at noon on Tuesday.

The London-based lender, which operates in 56 countries, should be able to rebuild profitability on its own as costs stabilize and revenue recovers to about $17 billion by 2020, the analysts wrote. However, it lacks the asset base of its two rivals in full-service trade banking in Asia -- HSBC Holdings Plc and Citigroup Inc. -- and it’s “possible that Standard Chartered now lacks the scale to fully utilize its network,” they wrote. In the meantime, Chinese authorities are also encouraging domestic banks to “expand in Standard Chartered’s footprint,” they wrote.

Winters is 18 months into his challenge to stem losses from toxic lending. The bank’s third-quarter earnings signaled he’s on the way to restoring the dividend after a sharp drop in revenue and surging loan impairments drove the lender to its first annual loss since 1989.

Standard Chartered’s total assets are about $692.3 billion, trailing HSBC’s $2.5 trillion. Its market value is about 25 billion pounds ($30.6 billion), compared with 135 billion pounds for HSBC.

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