First Abu Dhabi Bank (FAB), the largest lender in the UAE, said on Thursday that it had considered a bid for London-listed Standard Chartered but had decided against it.

Bloomberg previously reported that FAB was considering an offer for Standard Chartered as part of a plan to build an emerging markets bank, sending StanChart shares up by up to 20%.

Following FAB’s announcement that it was no longer pursuing a potential deal, the stock pared gains and closed up 7%.

The Abu Dhabi lender stated that it was in the “very early stages of evaluating a possible offer” for the emerging markets bank.

On Thursday, Standard Chartered declined to comment.

“Given StanChart has traded at relatively undemanding multiples for some time, as well as the fact that it has the benefit of a material surplus capital position, it is not surprising that it is seen as a takeover target,” said John Cronin, analyst at Goodbody.

Practicalities such as regulatory complexities and possible opposition from US authorities to the takeover of an important dollar clearing bank make any deal difficult to pull off in practice, according to Cronin.

Furthermore, the proposed merger of FAB and StanChart would have been subject to more onerous capital requirements, burdening the resulting lender, according to a banking source.

FAB cannot bid for StanChart within the next six months without the consent of the British bank’s board or in the absence of a competing takeover, according to takeover rules in the United Kingdom and Hong Kong.

“Timing is everything and this was, taking a medium term view, a good time to look at the bank,” said Trevor Green, head of UK equities at Aviva Investors, which is a top 20 equity investor in StanChart according to Refinitiv data.

“Still, shareholders will be not be willing to let the business go without a suitable bid premium.”

A StanChart debt investor who declined to be identified said the development demonstrated that there is widespread interest in purchasing strategic assets at low valuations, but such transactions are difficult to execute.

StanChart, which operates in 59 markets and employs approximately 85,000 people, has struggled in recent years to increase revenue after Chief Executive Bill Winters spent the first part of his tenure repairing the company’s balance sheet and laying off thousands of employees.

In October, the bank stated that rising interest rates would increase its income, allowing it to increase its revenue targets despite the weakening global economy.

Over the last decade, StanChart has been the subject of periodic takeover rumors in the media, with Barclays and JPMorgan named as potential suitors, though no deal has ever materialized.

Standard Chartered “is a bank that, while headquartered in the United Kingdom, is primarily focused on Asian, African, and Middle Eastern markets,” according to Stuart Cole, Equiti Capital’s head macro economist.

“Given the pessimistic outlooks for the UK, US and EU at the moment, a take-over would give the buyer instant access to these largely developing and emerging markets and could therefore be seen as a good move strategically,” Cole said.

The Gulf region is experiencing an economic boom as a result of higher oil prices in the aftermath of Russia’s war on Ukraine, with sovereign wealth funds and banks looking for deals amid a weakened global outlook.

Saudi National Bank announced in October that it would invest up to $1.5 billion in Credit Suisse, representing a 9.9% stake.

In 2016, the National Bank of Abu Dhabi and First Gulf Bank merged to form FAB. FAB has spent the last few years reaping the benefits of that merger and rebranding its branches. The lender receives roughly half of its deposits from the Abu Dhabi government and had total assets of 1.15 trillion AED ($313.1 billion) as of September 30, 2022.

(Adapted from Business-Standard.com)