Standard Chartered emerges unscathed and ready for new era

  • 28 Sep 2009
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Not many would have bet that a bank focused on emerging markets would emerge as one of the winners of the financial crisis. Yet, Standard Chartered has done exactly that. The bank’s focus on emerging economies as well as its conservative business and funding models have helped it navigate some rough waters over the last two years. Hélène Durandspeaks to its finance director and finds out what is behind the bank’s success. 

Despite being headquartered in the UK, Standard Chartered is far from being a traditional UK bank. Its history and roots are firmly based in the emerging markets and that has been instrumental to its success in recent years.

Standard Chartered is one of the few UK banks to have been able to avoid government help throughout the financial crisis and has, instead, been able to rely on investors to support it.

"We have always been disciplined with regards to our strategy and have not been distracted as a bank," says Richard Meddings, finance director at Standard Chartered in London. "Our strategy is built around Asia, the Middle East and Africa and this is where we have been focused and where we have been servicing our clients."

Investors’ belief in the story has been particularly evident in recent months and they have shown great trust in the bank’s story both in the equity and debt markets. One of the key selling points of the bank has been its conservative approach to banking. But its carefully managed funding profile has also attracted investors.

"By having a strong capital and liquidity position and staying focused in all our major markets, we have been able to remain open for business when a lot of banks have had to withdraw," says Meddings.

"We have remained focused on our customers and as a result have gained market share. The fact that Asia is in much better shape and better regulated with higher savings rates and FX reserves than the West also means that the recession is likely to be much shorter and shallower, and something we are well positioned to take advantage of."

The bank’s half-year results released at the beginning of August confirmed the strength of its franchise. Standard Chartered booked record revenues of $7.96bn, a 14% growth in the first half of 2009 leading to a 10% growth in operating profits to $2.83bn.

On the same day of the publication of its results, the bank launched a £1bn capital increase.

"We have sensed a palpable change in our customer’s sentiment and we want to make sure that as a bank, we are there for them with sufficient depth," says Meddings. "This was the primary reason why we did our recent equity placement. We are very proactive and what we do is try to stay coherent and cogent."

This was the second time in around eight months that Standard Chartered tapped the equity markets to boost its capital ratios. In December, it successfully completed a £1.78bn right issue. Despite a fast timetable and tricky markets, the transaction saw a 97% take-up.

According to Meddings, following the most recent share placement, Standard Chartered’s core tier one ratio now stands at 8.4%, its tier one ratio at 11.5% and its total capital ratio at 16.6%, which he says compares strongly with its peers.

While equity raisings have clearly been key in supporting the bank’s ratios, its clever use of the bond market has also helped.

Bond market intelligence

Indeed, the bank has been a trendsetter. In December last year it conducted one of the first liability management exercises that have since become commonplace in the global financial institutions market. By offering upper tier two bondholders the chance to sell their bonds back at a deep discount of 62.5, Standard Chartered was able to book the difference as a capital gain and therefore as core tier one capital. Many issuers have since followed in Standard Chartered’s footsteps.

The bank conducted another of these exercises in April 2009 when it tendered a dollar lower tier two note and exchanged upper tier two for senior debt, making a $140m pre-tax core tier one gain.

"We were ahead of our peers in terms of changing our capital structure as we could sense the strong move towards better and stronger forms of capital," says Prabhakar Sundaresan, head of capital management at Standard Chartered in London.

"This is why we decided to move out of tier two into tier one."

This focus on tier one capital was also evident when the bank issued a $1.5bn innovative tier one hybrid.

"In May of 2009, we did the first innovative tier one especially for the Asian retail market, a deal that saw significant investor appetite," says Meddings. "Indeed, the deal was six times covered despite being $1.5bn, which is a large size for that market."

The bank is a rare visitor to the senior bond market. According to Dealogic, the bank has raised the equivalent of $4.641bn since September 2008 in deals of $200m or more, none of it with a government guarantee. At the other end of the spectrum, Lloyds Banking Group has raised $55.953bn through 35 deals. Furthermore, Standard Chartered only has a mere $7bn to refinance between now and 2013.

Yet, this does not stop Meddings from being cautious. "We might be through the worst of the crisis, and if not, we are close to it," says Meddings. "However, I do think that people underestimate how much it will take for the real economy to climb out of where it is. I think there still can be a degree of shock and this slow climb out I expect will be turbulent. Therefore, we at Standard Chartered are certainly not going to be complacent in this uncertain world."

  • 28 Sep 2009

Bookrunners of Global Covered Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 HSBC 11,789.48 61 3.02%
2 UniCredit 9,643.13 76 2.47%
3 BNP Paribas 9,051.42 45 2.32%
4 Commerzbank Group 8,371.43 55 2.14%
5 LBBW 8,178.05 50 2.09%

Bookrunners of Global FIG

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Morgan Stanley 104,751.34 436 6.85%
2 Citi 98,203.64 567 6.42%
3 Goldman Sachs 95,417.51 527 6.24%
4 Bank of America Merrill Lynch 92,584.40 398 6.05%
5 JPMorgan 88,251.80 423 5.77%

Bookrunners of Dollar Denominated FIG

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 83,832.26 437 10.83%
2 Bank of America Merrill Lynch 74,618.17 337 9.64%
3 Morgan Stanley 73,833.21 321 9.54%
4 JPMorgan 73,576.52 325 9.50%
5 Goldman Sachs 73,402.96 445 9.48%

Bookrunners of Euro Denominated Covered Bond Above €500m

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 BNP Paribas 5,645.35 19 6.27%
2 Credit Agricole CIB 5,608.30 21 6.23%
3 LBBW 5,605.63 20 6.23%
4 SG Corporate & Investment Banking 5,543.24 22 6.16%
5 Commerzbank Group 4,949.16 20 5.50%

Global FIG Revenue

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 02 May 2016
1 Morgan Stanley 365.83 497 7.62%
2 JPMorgan 332.66 618 6.92%
3 Bank of America Merrill Lynch 299.89 590 6.24%
4 Goldman Sachs 276.71 375 5.76%
5 Citi 264.54 592 5.51%

Bookrunners of European Subordinated FIG

Rank Lead Manager Amount €m No of issues Share %
  • Last updated
  • Today
1 Barclays 9,461.63 27 12.31%
2 HSBC 9,014.48 37 11.73%
3 BNP Paribas 6,278.15 28 8.17%
4 Citi 4,542.03 36 5.91%
5 Credit Suisse 4,325.15 22 5.63%