StanChart said in a statement that it has agreed to acquire American Express Bank from American Express Company for a total cash consideration equal to the net asset value of AEB at completion plus $300 million in cash. As of June 30, 2007, this would have amounted to approximately $860 million, it said.
AEB, whose New York-based parent company AXP is the third-largest credit card network, is a leading international bank present in 47 countries, including India.
The Bank said the sale does not include its primary card and travel-related businesses. An AXP spokesperson said today that it would aggressively focus on card and travel-related services.
"The sale does not include any of our payments, including card and travel-related businesses in India, which are our primary businesses," the spokesperson said in a statement.
"For American Express, the decision is in keeping with our strategic focus on the card payments, network and
complementary travel businesses that are fuelling our growth," the spokesperson added.
The acquisition, which is subject to certain conditions, including regulatory consent, is expected to be completed in the first quarter of 2008.
StanChart said that AEB provides it with an opportunity to add capability, scale and momentum in the strategically important financial institutions and private bank businesses.
Among other benefits, "the acquisition will include valuable branch licences in India and Taiwan subject to regulatory approvals," it said.
According to the data released by Reserve Bank of India, Standard Chartered is the largest foreign bank in India in terms of branches with a total of 81 branches, as against American Express Bank's seven branches as of September 2006 out of total 258 branches of 29 foreign banks.
AEB's global correspondent banking business caters to approximately 1,700 banks in over 120 countries and its private bank services to over 10,000 customers with total assets under management of around $22.5 billion as on December 31, 2006.
Commenting on the deal, StanChart CEO Peter Sands said, "The acquisition will add capability and scale to two of the Group's strategically important businesses. AEB's balance sheet is highly liquid and its income is predominantly fee-based. This is a transaction which has compelling strategic and financial logic and is management accretive."
The acquisition would double Standard Chartered's US Dollar clearing business, making it the world's sixth largest US Dollar clearer. AEB would also provide it with a direct Euro and Yen clearing capability and would also provide opportunities to cross-sell Standard Chartered's products.
The deal would also fast-track development of Standard Chartered's recently launched Private Bank, adding about $22.5 billion of AUM and about 120 relationship managers.
Standard Chartered also expects to further deepen its existing network and expand its access to a select number of new growth markets through the deal.
Additionally, it would create significant synergy potential across business lines with pre-tax cost savings expected to total well in excess of $100 million per annum from 2009 onwards.
The acquisition would be accretive to Standard Chartered's Earnings Per Share in 2009, the first full year of ownership and is also expected to generate double digit investment return in 2009 before the allocation of integration expenses.
Standard Chartered intends to fund the deal from internal cash resources and ongoing debt funding programme.
The integration is expected to take approximately 24 months to complete and most of the related costs would be borne in the first year after completion of the transaction.
Cost savings would mainly come from combining IT systems and back-office operations and support function efficiencies. AEB employs approximately 2,300 staff with over 85 per cent in Standard Chartered's existing footprint.