Barclays casts eye over Standard Chartered as Bramson hovers

Barclays is reported to be considering a merger with Standard Chartered or another international bank as part of contingency planning prompted by the arrival of activist investor Edward Bramson as a shareholder.

A director from Barclays and Standard Chartered have had a private discussion about a merger, which is favoured as an option by Barclays’ chairman John McFarlane and Gerry Grimstone, who chairs the bank’s international business, the Financial Times reported.

Barclays’ directors are exploring options after Bramson’s Sherborne fund bought a 5.4% interest in the bank. The New York-based investor has not made his plans known to Barclays yet but his strategy is to agitate behind the scenes with support from other investors to pressure companies to return capital to shareholders.

McFarlane "has a real affinity for Standard Chartered" a senior banker told the newspaper. Another said combining Barclays and Standard Chartered was logical but it would be a surprise if Barclays went ahead.

Analysts at Jefferies said a potential tie-up with StanChart "would be a mess, in our view", while Investec dismissed the deal as "far fetched".

The report revives talk of a deal that was widely discussed before the financial crisis. In the mid-2000s rumours circulated regularly that Barclays, Royal Bank of Scotland and US rivals such as Citigroup and JP Morgan wanted to buy Standard Chartered.

The attraction of Standard Chartered has always been its large presence in fast-growing economies in Asia, Africa and the Middle East, attracting takeover speculation ever since a thwarted hostile bid from Lloyds Bank in 1986. The bank, based in London, makes almost all its money in those markets and was insulated from the financial crisis, piling on profit as Barclays struggled to survive.

Standard Chartered has remained independent partly because its management rebuffed approaches but also because the market placed a heavy premium on its business, making it expensive for any suitor.

After boom turned to bust for the bank, its share price has more than halved since peaking in 2013 despite signs of revival under chief executive Bill Winters. The former JP Morgan banker is well regarded and would be a candidate to run a combined bank after Barclays’ boss Jes Staley was fined by regulators for trying to identify a whistleblower.

A merger would be complicated by capital considerations because regulators consider both Barclays and Standard Chartered to be systemically important.

The FT said other "hypothetical combinations" Barclays is considering include merging with Deutsche Bank and Credit Suisse. Barclays shares fell 0.7% to 209.7p at 13:18 BST. Standard Chartered shares rose 1.2% to 776.1p.

Investec's Ian Gordon pointed out that given StanChart's business mix, the suggested rationale as a response to Barclays’ activist interest "makes absolutely no sense to us", while its geographic reach and modern-day regulatory complexity renders such a transaction "logistically prohibitive".

Analysts at Morgan Stanley understood why the board may be contemplating different scenarios, but saw "limited strategic fit" in a Barclays-StanChart merger, with limited business overlap, low cost synergies potential and StanChart trading at a premium.

"In our view, any such discussions, if true, reflect dysfunction at the board level as to the forward strategy of the bank and make the prospect for further shareholder activism even more likely."