StanChart buying Amex for $860mn, gains in pvt banking

StanChart buying Amex for $860mn, gains in pvt banking

London: Asia-focused bank Standard Chartered Plc. said on Tuesday that it is buying American Express Bank Ltd (Amex), a unit of American Express Co., for about $860 million (Rs3,492 crore) to help “turbo charge" the growth of its recently launched private banking business.

Standard Chartered said the purchase from Amex would accelerate the build-up of its private banking business by about three years and bring in Amex’s Financial Institutions Group (FIG), which provides clearing, payments and trade services to other banks.

The transaction is expected to close by first quarter of 2008. Amex is present in 47 countries, and serves other financial institutions and high-net-worth individuals through its global correspondent banking business and a full-service private bank.

The deal should create pre-tax cost savings of more than $100 million per year from 2009 onwards, which is likely to include some job cuts, the UK-headquartered bank said. The purchase should be accretive to earnings in 2009—the first full year of ownership, after factoring in costs associated with integrating the businesses next year.

“I wouldn’t expect it (the combined private banking business) will make a very significant profit contribution in 2008, the full potential will be coming through in 2009 and 2010 ... it’s the ability to gain critical mass in a business that we see as a key strategic priority for our future," said Standard Chartered chief executive Peter Sands. The deal will be funded from existing resources and the bank’s ongoing debt financing programme.

The Indian arm of Standard Chartered also stands to gain in its private banking operations. “Amex has a strong private banking client base in India," said Bala Swaminathan, managing director and regional head of client relationships, India and South Asia, Standard Chartered. The other benefit for the acquirer will be Amex’s clearing business, which is a system of daily offsetting of debts between banks. So far, the Indian arm of Standard Chartered did not have direct access to the dollar clearing business. In addition, Amex will provide Standard Chartered with a direct Euro and Yen clearing capability. Amex “handles clearing for a lot of public sector banks in India, and we will now get access to that business as well," Swaminathan said.

Standard Chartered is the largest foreign bank in India in terms of network with 81 branches, against seven branches of Amex.

Mint’s Gargi Banerjee contributed to this story.