StanChart buys American Express Bank for $860 million

LONDON (Reuters) - Asia-focused bank Standard Chartered Plc (STAN.L) said on Tuesday it is buying American Express Bank (AEB) for about $860 million to help "turbo charge" the growth of its recently launched private banking business.

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

AEB was founded in 1919 and is headquartered in New York, but Standard Chartered said its business is more than 85 percent in its existing geographic footprint and would also extend it to markets such as Egypt and Kazakhstan.

The deal should create pretax cost savings of more than $100 million per year from 2009 onwards, which is likely to include some job cuts, the UK bank said.

The purchase should be accretive to earnings in 2009, the first full year of ownership, after 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 program, and funding it "is not an issue" despite turmoil in global credit markets, Sands said.

"The current environment is an interesting mix of challenges and opportunities. We are well placed, we're vigilant about the nature of the risks but we also see many opportunities across our markets ... we're very liquid as a bank and we've got good growth momentum," Sands told reporters on a conference call.

Standard Chartered said its valuation of the AEB deal was based on net asset value plus $300 million.

American Express separately valued the transaction at $1.1 billion, with the difference coming from dividends payable from a fund that takes deposits from AEB customers, which will be wound down over the next 18 months and transferred to Standard Chartered. The fund has a net asset value of about $212 million, but Standard Chartered said its payment was unlikely to be "anything like that".

The acquisition is expected to be completed in the first quarter of 2008.

By 8:20 a.m. Standard Chartered shares were up 3.9 percent at 15.26 pounds, one of the top performing UK shares as the bank sector recovered from recent weakness and concern eased about funding problems across the sector.

AEB's FIG unit employs about 700 people and serves 1,700 banks in 120 countries, and is particularly strong in providing U.S. dollar clearing services, Standard Chartered said.

It said AEB's private bank arm has 400 staff and more than 10,000 customers, and had $22.5 billion in assets under management at the end of last year.