Barclays Investors Pour Cold Water on Potential StanChart Deal

(Bloomberg) -- Barclays Plc investors are dubious about the benefits of any potential merger with its British counterpart Standard Chartered Plc, pouring cold water on a newspaper report.

There was also skepticism from inside Barclays about the likelihood of a deal taking place. The possibility of a merger with emerging markets lender Standard Chartered isn’t being pursued and isn’t seen as practical as the bank completes its own strategic overhaul, according to a person familiar with the bank’s thinking. It follows a Financial Times report, which said executives weighed the combination.

"The answers are all no," said Rob James, a portfolio manager at Old Mutual Global Investors, which holds Barclays stock. "Barclays has laid out its stall as a transatlantic bank, and Standard Chartered doesn’t help that at all. It’s a low returning business, just what Barclays doesn’t need."

Barclays, with a market capitalization of 36 billion pounds ($48 billion) has been exploring a potential merger with rivals including Standard Chartered as part of wide-ranging contingency plans being weighed by board members following pressure from activist investor Edward Bramson to shrink parts of the business and boost returns, the FT reported earlier. No bid approach has been made, it said, citing unidentified people close to the matter. Standard Chartered, which has declined to comment on the specifics of the report, has a market value of around 26 billion pounds.

Investor Surprise

“I would be slightly surprised after Barclays have sold off their African operations mainly for capital reasons so we need to understand much more if indeed there is any substance,” Martin Gilbert, co-Chief Executive Officer of Standard Life Aberdeen Plc said in a Bloomberg Television interview. Gilbert would need more information before deciding whether to support a merger, he said. Standard Life Aberdeen holds stakes in both lenders.

Standard Chartered had gained 2.2 percent at 9:32 a.m. in London trading, while Barclays was little changed.

Barclays’s problem is an underperforming investment bank, while Standard Chartered’s is lack of capital generation to exploit the growth opportunities it has, according to Keefe, Bruyette & Woods analyst Edward Firth.

“We see absolutely no strategic logic or rationale behind such a transaction,” Firth said.

Standard Chartered said earlier in a statement that it’s focused on its strategy and isn’t responding to “speculation.” A potential takeover of Standard Chartered would bring together the transatlantic focus of Barclays in the U.K. and U.S. with Standard Chartered’s concentration on Asia, the Middle East and Africa.

It would mark a sharp reversal in Barclays chief Jes Staley’s public strategy for the bank, which has sold down its holdings in Africa under his tenure. Last month, Staley also reiterated a pledge to return an increasing amount of cash to shareholders through dividends and buybacks.

“I don’t know how seriously to take it, but if it’s true, it is the wrong thing,” said Eric Moore, a portfolio manager at Miton Group, who owns Barclays shares. “Barclays need to reduce their low return on equity activities, not buy more of them.”

To contact the reporters on this story: Gavin Finch in London at gfinch@bloomberg.net;Stefania Spezzati in London at sspezzati@bloomberg.net;Stephen Morris in London at smorris39@bloomberg.net

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Jon Menon

©2018 Bloomberg L.P.