View from City Road: No candidate for a Standard bid

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The Independent Online
For results on the low side of market expectations, the behaviour of Standard Chartered's share price yesterday was extraordinary. Explanations varied from the obvious - there was a severe shortage of stock because there were few sellers - to the absence of a rumoured rights issue, plans for Far East listings and straightforward bid speculation, which has hung around ever since the failed attempt by Lloyds in 1986.

On paper Standard is a tempting bid target because of its Asia Pacific businesses, which produced pounds 204m of pre-tax profits, nearly a quarter of which was then gobbled up by losses in the UK.

It is almost impossible to start from scratch in the fast-growing Asia Pacific markets. Entrants need to buy a franchise, and there are few available. Indeed, a British-owned bank with interests there has an added rarity value: our highly liquid stock market makes it relatively easy to buy. In some countries it is hard to be sure who the owners are, let alone make a bid.

Even after the sharp rise in price, a case could be made for a bidder paying more still, given that nearly half the assets are outside Asia and the Pacific, and could either be made to work harder or sold off. The valuation is still only eight times this year's expected earnings, which is lower than the clearers, while the dividend is a handsome five times covered.

Furthermore, a fifth of the equity is in two large and potentially loose blocks of shares belonging to Lloyds Bank and Tan Sri Khoo Teck Puat, who could at last take a profit after seeing their stakes underwater for the seven years since the Lloyds bid.

Yes, a bid makes sense, but by whom? Lloyds has gone off in a different retail banking direction; HSBC Holdings would be accused of creating a Hong Kong monopoly; Japanese and Australian banks have their backs to the wall, though one of these - or perhaps a Singapore bank - might be tempted by a strategic stake.

To find banks with the resources to make a pounds 3bn bid at this stage, eyes must turn to Continental Europe or - more likely - the United States. But after a phenomenal recovery in profitability in the past two years, US banks have yet to become outward- looking again. A bid waiting to happen, surely. But the difficulty is still pinning a label on a candidate.

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