The City has taken a skeptical view of the notion of Barclays PLC tying up with Standard Chartered PLC in response to pressure from activist investor Edward Bramson, as suggested by the Financial Times.
The newspaper said May 23 that Barclays Chairman John McFarlane had considered a tie-up with Standard Chartered to create a bank with a combined £60 billion market cap, adding that he was supported by Sir Gerry Grimstone, who chairs the lender's international unit. According to the report, a conversation took place between a director of each bank, yet without any formal or informal bid approach.
Bramson holds a 5.4% stake in Barclays and is understood to want CEO Jes Staley, whom he met earlier this month in New York, to drastically slim down the lender's investment banking arm and return much of the £25 billion tied up in capital in the business to shareholders. Barclays has long been criticized for its commitment to its investment banking arm, which some commentators regard as undersized and therefore unable to compete compared with its U.S. rivals, which dominate the market.
However, a number of analysts contacted by S&P Global Market Intelligence dismissed the notion of the two banks combining.
'A larger underperforming business'
Edward Firth at Keefe Bruyette & Woods Inc. noted that McFarlane was a former CEO of Australia & New Zealand Banking Group Ltd. and an executive director of Standard Chartered, so had plenty of relevant experience. "[But] other than that, we see absolutely no strategic logic or rationale behind such a transaction," he added.
According to Firth, Barclays' problem is that it has an underperforming investment bank, while Standard Chartered's problem is a lack of capital generation to exploit opportunities.
"One underperforming business plus another underperforming business gives you a larger underperforming business," he said.
Investec PLC analyst Ian Gordon said he thought the notion of a tie-up between the two banks was "far-fetched," adding that he could see no "strategic fit" for Standard Chartered with Barclays. Nor did he think a tie-up would satisfy Bramson, noting that corporate and investment banking amounts to 45% of Standard Chartered revenues, an area Bramson wants to see shrink, not grow. Gordon also said Staley had at least floated the idea of share buybacks, which might not be credible for 2018 but might become so in 2019.
"We believe that most Barclays' shareholders would be horrified to see this consumed by M&A instead," he added.
Gordon noted that all recent mergers and acquisitions in the British banking sector had targeted overtly undervalued banks. "In our view, that's not Standard Chartered," he said.
Rumor is unhelpful to Staley
Firth criticized Barclays' management for even entertaining such a deal, saying: "When under pressure to deliver improved performance, rather than focusing on the 'nuts and bolts' of delivering incremental improvement, [they] prefer to search for a 'rabbit out of the hat' solution."
Talk of a tie-up is also seen as unhelpful to Staley since it undermines his strategy of focusing on boosting Barclays' existing business, including its investment bank arm, now that a series of regulatory issues are over.
Earlier in May, Staley was fined £642,430 by the FCA and the Prudential Regulation Authority for a breach of conduct after he attempted to unmask a whistleblower at the bank. Barclays also clawed back £500,000 of his bonus over the matter.
Barclays declined to comment on the rumor, while Standard Chartered said: "We are entirely focused on executing our strategy and do not comment on this type of speculation."
Barclays' stock price fell to 208.80 pence per share on May 23, a fall of 1.09%, while Standard Chartered's shares were up sharply by more than 5% in Hong Kong overnight to HK$84.80 per share. In London on May 23, Standard Chartered's share price rose 0.44% to 770.30 pence.
Martin Gilbert, co-chief executive of Standard Life Aberdeen PLC, one of Barclays' biggest shareholders, told Bloomberg TV on May 23 that he would be "slightly surprised" if a deal happened after Barclays sold its African division to raise capital.