Ceteris Paribus: What to expect from the Stanchart acquisition

On November 14, 2023, the Reserve Bank of Zimbabwe (RBZ) agreed to the transaction involving the acquisition of 100% of Standard Chartered Bank Zimbabwe (Stanchart) by FBC Holdings Limited (FBCH).

This followed Standard Chartered PLC’s April 2022 announcement of its decision to divest the company from several markets, including Zimbabwe, with FBCH emerging as the successful bidder.

It is further noted that the transaction involved FBCH acquiring complete control and ownership of Stanchart, as well as an economic interest in Africa Enterprise Network Trust, which holds a significant shareholding in Mashonaland Holdings Limited.

The transaction is also part of FBCH’s market-accepted plan to enrich and expand its loan guarantee capacity in the face of increasing volatility.

Last week, Stanchart and FBCH merged their operations. However, pending regulatory approval for the name change, Stanchart will continue to operate under its traditional name for the next three months.

The acquisition was based on the net asset value of Stanchart’s balance sheet and its aforementioned Africa Enterprise Network Trust (AENT) of approximately $140 million. FBCH’s acquisition of Stanchart strengthens its position in Zimbabwe’s banking sector.

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By acquiring Stanchart, FBCH increases its market share, customer base and overall influence to a relatively significant extent. The planned operational synergies are also likely to lead to cost savings and improved efficiency.

Moreover, it is worth noting that Stanchart, being an international brand (before synergy), prided itself on its international influence, which in a sense had an impact on its balance sheet. Therefore, in line with FBCH’s long-term view, the merger is likely to lead to increased private sector financing capacity through long-term borrowings from international markets on favorable terms, leveraging increased underwriting capacity.

For the full year ended December 31, 2023, FBCH had a total deposit level of ZWD 1.11 trillion (USD 181.8 million at ZWD 6,104.72 per dollar) compared to a total loan portfolio of ZWD 1.6 trillion (USD 262 million). dollars).

In real terms, net credit assets relative to the group’s balance sheet are strong enough to withstand currency fluctuations. In this light, the new synergy is expected to further strengthen the position of the entire group by expanding its core banking activities into untapped markets and riskier ventures that involve long-term instruments that are often avoided for fear of volatility.

On the other hand, it should also be noted that FBCH and Stanchart operated within different cultures and practices. However, locally Stanchart was too small compared to FBCH.

Still, both banks had lucrative products and were in the pipeline. We expect the synergy to benefit customers of both banks as the products will connect and apply across the board.

However, this may be extended and take time as the decision to retain the full Stanchart workforce will require a culture change that can never happen immediately. In this light, adjustments to the workforce, including layoffs or redeployments, are highly expected in the short to medium term.

Since the decision to leave most of the countries had already been considered many years ago, Stanchart had already started downsizing, which led to significant customer losses. However, the company did not lose much of its balance sheet during this period.

We therefore expect the synergies to benefit FBCH more in terms of financial and operational leverage than in terms of market share in terms of customer base. To attract more customers, synergies should leverage the different cultures of the different merged companies to offer services tailored to the needs of different sectors and interests in the market.

This can accelerate financial inclusion efforts and thus lucratively target different and all parts of the market.

• Duma is a financial analyst and accountant at Equity Axis, a leading media and financial research firm in Zimbabwe. — [email protected] or [email protected], Twitter: TWDuma_