StanChart drops after SIV plunge

PUBLISHED : Wednesday, 13 February, 2008, 12:00am
UPDATED : Wednesday, 13 February, 2008, 12:00am

Shares of Standard Chartered Bank fell 2.45 per cent yesterday after the lender said Whistlejacket Capital, the structured investment vehicle it managed, lost more than half its net asset value. The plunge prompted the appointment of a receiver.

The stock fell as much as 3.37 per cent to HK$229 before ending at HK$231.20, down from a previous close of HK$237.

The bank said its proposal to provide liquidity for the SIV, which uses short-term borrowing to invest in longer-term assets, also lapsed as a result of the enforcement event.

JP Morgan said the move would be a short-term negative for the bank's earnings and stock price.

'Any forced sale of assets would likely deepen losses, both for the remaining US$7.15 billion assets and potentially for Standard Chartered's US$3.33 billion exposure,' the brokerage said.

The bank took US$3.33 billion of Whistlejacket's assets on to its balance sheet in December last year in exchange for its US$283 million in capital note exposure.

The US brokerage said, technically, Standard Chartered had no further exposure after it converted its capital note exposure to assets.

'We believe that Standard Chartered may end up taking more assets on its balance sheet,' JP Morgan said. The bank might potentially incur reputational damage if it walked away, since many capital note holders were its clients, it said.

JP Morgan said Citic International Financial Holdings also had exposure to capital notes of Whistlejacket.

Bear Stearns said if the bank remained willing to provide liquidity to Whistlejacket, it would be exposed to losses arising from further falls in the value of the SIV's assets.