StanChart holds off on minibond provisions

PUBLISHED : Thursday, 03 March, 2011, 12:00am
UPDATED : Thursday, 03 March, 2011, 12:00am

Standard Chartered Bank, which expects double-digit income growth this year, plans no further provisions to compensate customers of its Lehman Brothers derivative products.

The decision comes after the British bank agreed to a HK$1.48 billion payback plan for the products with Hong Kong's regulators this week.

The bank, which focuses on Asia, sold more than HK$5 billion of equity-linked notes issued and guaranteed by Lehman Brothers between August 2006 and June 2008, of which HK$2.19 billion remains outstanding.

It has already twice made provisions to repay customers who made losses when Lehman filed for bankruptcy in 2008. Its 2010 annual report included the remaining payment agreed with the regulators, the bank said.

According to a statement by the Securities and Futures Commission, Standard Chartered has 2,515 outstanding structured products issued by Lehman and they are held by 2,234 individual customers with the bank.

Equity-linked notes are a type of derivative product comprising unsecured debt issued by investment banks. The return of these derivatives is often linked to the performance of a basket of stocks.

Under the agreement, Standard Chartered would not repay 100 per cent of customers' principal invested in Lehman-issued structured products but offered partial payments.

'Our agreement this week is in the best interest of our customers and our staff,' said Benjamin Hung Pi-cheng, chief executive of Standard Chartered's Hong Kong operations in yesterday's annual results for 2010 press conference.

'It was a very unprecedented event. I hope the settlement would bring closure to the matter so we can all move on,' Hung said.

The bank booked a 29 per cent growth in net profit of US$4.23 billion for the year ended 31 December 2010, compared with 2009.

Operating income rose 6 per cent to US$16.1 billion for 2010 compared with 2009, and operating expenses jumped 13 per cent to US$9.02 billion for 2010 compared with 2009.

The bank's earnings and return on equity will be affected by last year's rights issue and the UK bank levy, which will be implemented this year.

Standard Chartered said the levy, which was devised by the UK government to raise capital, would cost US$180 million after tax.

Jaspal Bindra, Standard Chartered's Asia chief executive, said he was confident that the 2010 results, along with strong figures in January this year, would see the bank deliver 'double digit' growth in 2011.

'Obviously the levy is still an issue of the West that hasn't contaminated the thinking of policymakers in our part of the world,' said Bindra.

'So hopefully it's not an issue in Asia, Middle East and Africa.'

Standard Chartered is a stakeholder of Agricultural Bank of China after investing US$500 million in the world's largest initial public offering last year.

Bindra said the bank was looking to come up with complementary businesses with the state-owned bank on the mainland.

However, he gave no details of the bank's plans for collaboration with ABC in that market.

Profits of boom

Post crisis, Standard Chartered has outperformed its peers

An emerging-markets focus has seen the bank's profit jump to US$4.23 billion in 2010, up by this amount from 2009: 29%