Sunday, August 2, 2009

StanChart set to buy RBS' SME business in India, China, Malaysia

Standard Chartered is set to seal a deal to buy Royal Bank of Scotland’s retail and small and medium enterprises (SME) operations in India, China and Malaysia, two people familiar with the development said.

The deal, which could cost the UK-based bank around $250 million, is likely to be announced in a fortnight, said a dealmaker close to the negotiations. The businesses on offer are a perfect strategic fit for StanChart, which earns more than 70% of its income and over 80% of its operating profit from Asian operations.

RBS had put its retail and SME business in nine Asian countries on the block earlier this year. The Indian operations of RBS, which continue to run under the ABN Amro brand name pending regulatory approval, will account for a bulk of the consideration.

The talks, which are taking place in London, may conclude by early next week. Current discussions relate to the extent of the losses that RBS will fund in the next 12 to 18 months, said a senior bank executive.

There are also some HR issues in China and Malaysia that need to be addressed. The retail and SME portfolio under the ABN brand in India is around Rs 11,500 crore, of which the retail portfolio is around Rs 6,800 crore. Losses and provisions in these business for the last calendar year stood at around $160 million (around Rs 770 crore).

Despite losses, StanChart is keen on ABN Amro because of its one-million customers. It is also interested in Van Gogh, the premium banking service offered by ABN Amro to high net worth individuals. Both the banks have kept RBI informed about the due diligence and sale process.

The StanChart spokesperson said, “We always look at opportunities in our footprint markets but, as you would expect, we don’t comment on any specific opportunities we may be looking at.”

“The sale process of the retail and commercial assets in Asia has advanced well; however, due to regulatory constraints and the confidentiality of the process, we will not comment on any individual bidders or elements of the transaction process until its completion,” said the RBS spokesperson.

An earlier proposal by RBS to sell 26 of its 31 branches in India had to be shelved because RBI refused to transfer branch licences. StanChart is likely to receive some of the branches in order to service retail customers. Out of these 26 branches, around 10 are in cities where StanChart does not have operations.

In some of the other locations, the bank may need more branches, as ABN’s existing branches are far from StanChart’s. StanChart currently has the largest number of branches in the country at 90, and may get another 18 from the deal. Given the fact that it is the UK government, with its 70% ownership of RBS, which is selling the bank’s Asian units, RBI may take a lenient approach this time around. The transfer of branch licences, however, may not figure in the sales agreement.

The business RBS will continue to do in India include wholesale debt and debt capital market business, M&A, equities research and trading, markets and treasury, corporate banking, cash and trade business and private banking business. In China, RBS has around 13 branches while StanChart has around 55. StanChart may get only around five or six of these branches if the regulators approve the takeover.

The portfolio in China is a mix of more wealth and commercial banking. In Malaysia, the gain would be minimal for StanChart, where RBS has four branches. StanChart is one of the few banks to have been relatively insulated from the global financial crisis, as most of its income comes from emerging markets in Asia and Africa.

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