A very British coup at the bankers to the Raj

Is Standard Chartered a relic of the past or a group with a future? Its new boss Mervyn Davies has to decide

On Wednesday morning, a balding but energetic Welshman will step into the limelight. Mervyn Davies could hardly have expected to be presenting Standard Chartered's annual results, at least not this year. But after the unceremonious sacking of his predecessor, Rana Talwar, last November, the 49-year-old Davies has found himself in one of world banking's hottest hot seats.

Standard Chartered is a bank with a colourful past, an intriguing present and an uncertain future. Few in the City expect it to be independent in five years' time – but if you'd asked them 10 years ago, they'd probably have said the same. The question is: does Davies think the bank has an independent future, and will Standard's next choice of chairman agree with him?

First the facts. Standard is a relic of the old British Empire. As the Crown's sphere of influence spread from Vancouver to Madras, it needed bankers to transact the commerce of the new world. Standard Bank, Chartered Bank and Grindlays Bank grew up to service this need. Standard and Chartered merged in 1969. Grindlays, which was founded by an English captain in India in 1824 and had been taken over by ANZ Bank of Australia in the Seventies, was purchased by Standard Chartered two years ago. The resulting business may have its headquarters in London, but it makes most of its money in Hong Kong, Singapore and India, and boasts outposts in Zimbabwe, Bangladesh, Sri Lanka and Ghana.

In the mid-Eighties, Standard was at the centre of one of the most bitter bid battles in living memory. It wanted to merge with Royal Bank of Scotland, but the deal was undermined when Lloyds Bank put in a hostile bid. Standard beat off Lloyds through the intervention of three Asian businessmen, known as the "white squires". One of them, Tan Sri Khoo Teck Puat, still retains 14.6 per cent of Standard's shares and is said to be the key to the bank's future.

Add into the mix a financial crisis that afflicted the bank in the late Eighties; this was partly due to its expansion in the US, partly to the Third World debt crisis, and partly to Standard doing what it is dreadful at – banking in the UK. The Bank of England was so concerned that it parachuted in one of its senior regulators, Rodney Galpin. He stabilised Standard and brought in Sir Patrick Gillam, now the chairman, and Malcolm Williamson, who was chief executive until 1998.

Sir Patrick fiercely believes that Standard has an independent future, but he is due to retire next year. Those two facts may have a lot to do with the intrigue that currently surrounds the bank.

The events that led to Rana Talwar's sudden departure probably started in February 1998 at the Park Lane restaurant Chez Nico. Malcolm Williamson, who was about to retire at Standard Chartered, was dining with Martin Taylor, then chief executive of Barclays. They discussed a merger between the two banks. The oft-repeated story is that Williamson rebuffed Taylor, a move that undermined the Barclays boss's credibility and contributed to his ousting later that year.

But in senior banking circles a different tale is told. Williamson was keen on the deal but when he proposed it to his chairman, the idea was shot down in flames.

Williamson was replaced by Talwar, the first Indian to run a FTSE 100 company and only the second Asian. He was hired from Citibank, one of only two groups to challenge Standard in terms of global reach (the other is HSBC). Charming and intellectual, Talwar was seen as a breath of fresh air. His purchase of Grindlays and the Chase Manhattan credit card business in Hong Kong were considered good strategic moves, if a little expensive. His cost-cutting plans, announced in late 2000, were well received by the City. Then the wheels fell off.

Talwar was concerned about succession. To replace Sir Patrick on his retirement, he had pencilled in Sir Ian Prosser, the outgoing chairman and chief executive of Six Continents (né Bass). But Sir Patrick had his doubts.

Was Sir Ian the right ambassador for Standard? After all, part of the chairman's job was to entertain, for example, the finance minister of Malaysia to promote business in that country, and the dour Sir Ian might not fit the bill.

Sir Patrick was also worried that Talwar was missing the reassurance that Citibank's large balance sheet gave him, and was looking to sell Standard to someone such as Barclays or Lloyds TSB.

It all came to a head one Tuesday in late November last year. While Talwar and two other executive directors, Chris Keljik and Nigel Kenny, hosted a cocktail party, Sir Patrick gathered the rest of the board. He said he had his doubts about Talwar, complaining about a lack of attention to detail, and proposed replacing him with the impressive head of Standard's lucrative Hong Kong business, Mervyn Davies.

The next day the deed was done. Talwar was out and Davies was on a plane to London.

Ten weeks on, few outside the bank have met the new boss. Those who have describe him as entertaining and self-deprecating. In contrast to Talwar, who people joked could start a debate over whether to serve tea or coffee, Davies is decisive. He is also extremely energetic. After 12 hours in the office, he will put on his running shoes and jog for an hour. He recently competed in a 10km race in Hong Kong.

His first task will be to present the annual results, which the City expects will be good, with profits nudging £1bn as the Far East shows signs of recovery.

His next chore will be to intro-duce himself to City analysts and fund managers at a series of dinners and drinks parties. He will no doubt want to know where Sir Pat-rick is whenever he is socialising.

The task after that is to find a new chairman. An announcement is expected in May, at the bank's annual meeting. There are no real internal candidates, so Standard is looking to an outsider. Unless the new chairman has banking or Far East experience, the City will be disappointed. Rumours are that David Clementi, deputy governor of the Bank of England, has been sounded out. But the job might be seen as a step down for him.

And the final task is to carve out an independent future for the bank. Tan Sri Khoo Teck Puat is said to be willing to sell out for £12 a share, 50 per cent more than the current price and valuing Standard at nearly £14bn. It seems a hefty price to pay, but as one City analyst pointed out: "There is more growth in Penang than there is in Peckham."

Standard may be a relic of the past. But for rivals battling it out in an overcrowded British banking market, it could be the future.