StanChart’s global private banking head, Peter Flavel, now in the middle of a ten-market roll-out of the bank’s new private banking offer, declared that the acquisition “puts the private bank forward at least three years in our wealth plans”.
The deal should help StanChart, which a decade ago sold its original private banking operations to Swiss Bank Corp, now part of UBS, well on the pace to catch up its big rivals. Within StanChart, it is now admitted that divestment had been “strategically flawed”.
The $860 million price paid by StanChart was equal to the net asset value of Amex Bank at completion plus $300 million. Amex Bank’s total revenues are about $700 million, with private banking estimated to be contributing just under 30 percent. The rest comes from the wholesale bank side, which itself fits with StanChart’s international correspondent banking and currency clearing businesses.
So the Amex private bank has effectively been bought for about $260 million, based on 30 percent of that $860 million total paid. After including the $22.6 billion of Amex assets under management (AuM), the purchase price is a little over 1 percent of AuM for a private bank with a significant network. This includes seven booking centres, 25 offices and 120 relationship managers. Then StanChart will additionally capture the synergies of systems, infrastructure, data centres and properties.
Amex Bank has been up for sale for several months and a number of banks have looked over the operation. But it has been overshadowed by a huge US anti-money laundering investigation, which finally culminated in a $65 million fine on the bank in August. However, StanChart appears confident that it is acquiring a largely problem-free operation. The cards and travel parent American Express has conducted extensive investigations and clients into the bank, with the help of outside consultants, and amid considerable pressure by US regulators to clean up Amex Bank. Examination of the Latin American private clients business was particularly tough.
Standard Chartered says its acquisition will propel it well into the top ten list of Asia’s high net worth wealth league – most likely in seventh position. At the end of 2006, JPMorgan was ranked as the seventh-largest wealth manager in Asia, with $27.5 billion of assets under management (see table).
For StanChart, AuM globally should conservatively increase by about 70 percent to $30 billion after the acquisition. The bank also picks up valuable trust and fiduciary operations and a wrap capability, which were scheduled to be rolled out by the bank as it built up its wealth operations globally.
The future ‘cost avoidance’ is thus significant. In addition, the Amex back office administration system is the same one that StanChart is developing, avoiding the normal headache of choosing one system and then undertaking an always tough client conversion exercise.
StanChart also adds Amex’s 120 private bankers to its existing 150 client managers, with most of the Amex staff coming in StanChart’s key Asian and Middle East markets.
StanChart chief executive Peter Sands said the deal “turbo charges” the private bank effort by doubling its relationship business. He said the acquisition would make “no significant contribution in 2008” to earnings growth at the private bank, but that it will be accretive to StanChart’s earnings per share in 2009 and generate a double-digit return on investment in 2009 before integration expenses.
Sands said integration should take about two years to complete, with the majority of integration costs borne in the first year.