Standard Chartered hit a one-year high in a falling London market on Tuesday after its joint house broker said that, should a turnround plan fail, the bank should put itself up for sale.
Merrill Lynch turned positive on StanChart, largely on the prospect of chief executive Bill Winters rebuilding profitability.
The “slow but inexorable” improvement to returns from higher interest rates, in combination with cost cuts and lower bad-debt charges, led Merrill to raise its earnings estimates by 18 per cent.
“We believe the market will support the group’s independent strategy,” Merrill told clients. “However, in the event of disappointment, we believe the possibility of the end of the nine-year regulatory expansion and the new US administration open the potential for StanChart to seek out a merger.”
Deeper cost cuts would risk damaging StanChart’s network, which might already be at a disadvantage against larger rivals HSBC and Citigroup, said Merrill. And with StanChart’s valuation currently a sector outlier at just 0.7 times tangible book value, “a sale remains a possibility”, the broker said.
StanChart closed 2.8 per cent higher at 744.7p. Since hitting an 18-year low in February, the stock has rebounded by 90 per cent.
Dollar earners sunk the wider market with sterling rallying sharply in response to Theresa May’s setting out of objectives for the Brexit process.
Burberry, which makes around 11 per cent of group revenue from its home market, slid 2.7 per cent to £15.93 a day before a trading update.
Diageo slipped 2.9 per cent to £21.32 following reports that the Guinness maker has been considering adding to its majority stake in United Spirits of India, its second-biggest market by sales.
Since Diageo took control of United Spirits in 2014, the shares have fallen around 35 per cent.
Intertek was 3.2 per cent lower at £34.49 after Credit Suisse moved to “underweight” as part of a downgrade of the European testing companies, largely on valuation grounds.
“Given its operational exposure we think that Intertek is the most exposed of the major staffing companies if protectionist policies lead to indigestion in global trade routes,” said Credit Suisse.
With organic growth unlikely to rebound quickly and the stock trading at nearly 20 times 2017 earnings, there is better value in sub-sectors such as staffing and security, it said.