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23 February 2024

Standard Chartered rides the storm

By Frank Kane


In the middle of global financial angst, how refreshing it was to see the results from Standard Chartered.

If a corporate strategist had been told, say three years ago, that in 2007 there would be a meltdown in the American mortgage market and a global credit crisis, and he was asked to design a financial services group to avoid those dangers, he would have come up with the Standard Chartered organisation chart.


Even the bank’s rivals give it credit for setting its priorities, and sticking to them come what may. Stanchart has concentrated on its traditional strengths – the fast-growing markets of Asia, the Middle East and Africa.

When others were chasing “trailer trash” mortgages in the American Mid-West, Stanchart was investing in the Far East. When others were experimenting with highly leveraged financial instruments, Stanchart was sticking to slick and profitable corporate and retail banking.


The financial results were there for all to see. Profits were up 27 per cent to more than $4 billion. While the bigger US banks were writing off billions, Stanchart’s total exposure to asset-backed securities was less than 2 per cent of its balance sheet.

When it did see a potential exposure, it was quick to act – the Whistlejacket structured investment vehicle that went into receivership led to a write-off of a mere $133m, modest compared to the billion-dollar hits admitted by others.


There is always the possibility that any US economic slowdown will impact Stanchart’s Asian operations, and it is too early to tell if this will be the case this year. But in 2007 business in China, Hong Kong and India soared.

In Hong Kong, profits topped the $1 billion level for the first time. I still believe Asian growth will compensate to a large degree for any slowdown in the US and Europe.


The Middle East could also be a source of financial comfort. Last year, the UAE made a significant contribution, with income in consumer banking up 32 per cent to $302m and wholesale banking 24 per cent ahead at $261m.

With the addition of American Express, bought last year, to the Stanchart private banking capability, this specialism can only benefit further. The analysts are talking about double-digit growth this year, which is a rarity in the banking sector at the moment.


When Stanchart chairman Mervyn Davies was recently in the UAE, he went out of his way to stress that the bank would be open to any approach by a sovereign investor, and the logic of these financial results is that those funds should be forthcoming even more quickly.


Stanchart has been the subject of takeover rumours for years, with large chunks of shares swapping hands between different power brokers, each time prompting more speculation of an outright bid. That situation now looks to be normalizing.

Temasek of Singapore has 20 per cent, while Istithmar of Dubai last year paid $1 billion for holding of just under 3 per cent.

Some analysts believe Istithmar is contemplating an increase in its holding, and, although this could be seen as the start of a UAE versus Singapore bidding war, it is more likely to result in a welcome bout of stability on the share register.


Though I suspect the bid stories will continue, I think Stanchart has the opportunity now to show that its impressive performance in 2007 was no fluke, and that it can go on to greater things.

No bank is so well placed to take advantage of the sudden global imbalance between east and west.