It’s 19th May 2018 and millions of people across the globe are witnessing the royal wedding of Prince Harry and Meghan Markle. It was a historical occasion that happened at Windsor castle. A week later after this momentous occasion, financial observers around the world were treated to some more exciting news that filtered through on the markets.
Barclays Bank, the fifth largest bank in Europe with assets totaling over $1.496 trillion was considering a possible merger with Standard Chartered Bank. Standard Chartered bank is the 20th largest bank in Europe with total assets of $663.5 billion and is a star darling in the emerging markets of Asia, Middle East and Africa. It all seems like the United Kingdom is not yet done giving the world spectacular weddings and we might just have a sky blue wedding on the cards in the near future.
Although representatives from both banks were quick to rule out the possibility of a merger between the two banks and thereafter quashing the story as nothing more than a rumor, the idea itself was intriguing. However, even though their comments managed to put out a big fire that had been ignited on both sides of the Atlantic markets, it did not quite manage to put it out completely as there are still some flickering flames around the story. The story dared us to dream. To dream of possibilities, bigger possibilities for both banks. Here is my short simple story of why I think a Barclays-Standard Chartered merger would be the biggest corporate wedding in recent history.
Barclays bank is currently being headed by Jes Staley, a Wall Street banking veteran who had spent nearly three decades at JP Morgan Chase and was tipped for the top job there. He took up the Barclays top job in 2015 with a very big reputation and he knew it all too well such that he was able to muscle through his ambitious strategy of making Barclays the biggest transatlantic bank. He put into overdrive a restructuring plan to dispose of non-core assets that in his words were a “costly distraction” to the strategic vision of the bank. It was during his time when Barclays cut ties with its African operations after an illustrious century on the continent much to the displeasure of some financial observers who had always seen the African continent as a region with high growth potential in the long term.
A review of the 2017 financials in which Barclays made a pretax profit of $4.92 billion shows the man they simply call “Jes” is making considerable headways in turning around the fortunes of an institution that was once called the “English patient” due to the scandal ridden years which coincided with stagnated growth. Mr. Staley hailed 2017 as the year of “considerable strategic progress”. As of June 2018, Barclays had cleared a number of outstanding items.
This includes the fine from US authorities over the selling of risky mortgage backed securities, the whistle-blowing incident involving the CEO himself and the separation of retail and investment banking as required by the new ring-fencing UK rules. All this has made the bank leaner, scandal free and more focused on its strategy.
However, some financial observers including myself can’t help but spot an Achilles heel in the Barclays strategy; their absence in the emerging markets of Africa and Asia. For now, Jes Staley can stake his claim that his high stakes strategy is paying off due to the sluggish growth emerging economies have experienced mostly driven by a slump in commodities. However, in the medium to long term, there is just an instinctive feeling that emerging economies will shake off their problems and be centers of global growth. This might work against Barclay’s ambition of competing with some of the biggest banks in the world who have a global footprint. Surprisingly enough, Barclays Achilles heel happens to be the strongest point for Standard Chartered which is renowned for being an emerging markets darling.
Standard Chartered has had its own fair share of problems which culminated in a first ever full year loss in 2015 in over two decades. However, the bank has undergone restructuring under the leadership of Bill Winters and has returned on the growth trajectory. Many observers have sang praises for the Standard Chartered model in emerging markets which they consider second to none.
However, the Standard Chartered model has evolved slightly over the last few years, with the bank making massive investments in its investment banking division. The returns of the investment banking division however, even though reasonable to contribute to its bottom-line, have been below those of the industry top dogs and there is just a feeling investment banking simply isn’t its forte even though it’s trying really hard. Ironically, remember whose trying to build the biggest investment bank across both sides of the Atlantic? Yes, it’s none other than Jes Staley at Barclays.
Surprisingly, Jes and Bill Winters are former colleagues at JP Morgan Chase, makes it easier for them to meet over coffee and do the deal many of us want to see.
This is a short story of two British banks that are so different yet complement one another to near perfection. A corporate wedding between the two would create a behemoth global bank that would compete on all fronts with the best of the best in international banking. Every supporter of this merger must now look to John McFarlane, the current chairman of Barclays whose tenure runs out next year to engineer what could be his biggest deal of an illustrious career. Coincidentally, Mr. McFarlane worked for Standard Chartered for half a decade during his heydays.
Everything points to the deal. But then again, I must also admit I could be getting way ahead of myself. Maybe the two banks are just simply that; very different to one another! This could make the merger possibility nothing more than a fairy tale.
Needless to say, many financial observers are licking their lips at the prospect of seeing a sky blue wedding down the streets of London, but if that does not happen, then at least we dared to dream.
The author is an Economist, Writer and a Corporate Executive. All views expressed in this article are solely mine and do not represent the views of my employer, church and any other organization am affiliated to.