Standard Chartered

Short seller Carson Block targets Standard Chartered on loan risks

PUBLISHED : Tuesday, 14 May, 2013, 12:00am
UPDATED : Tuesday, 14 May, 2013, 3:32am


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Carson Block, the short seller who runs Muddy Waters, is betting against the debt of Asia-focused Standard Chartered because of "deteriorating" loan quality.

"We think the market misunderstands the amount of risk that's presently in the book," Block said on Friday. A US$1 billion loan to Samin Tan, chairman of Bumi, the coal company at the centre of a dispute between co-founders Nathaniel Rothschild and Indonesia's Bakrie family, and loans to Far East Energy were "red flags", he said.

Block, who has in recent months targeted Singapore commodity trader Olam International, is turning his focus to Standard Chartered after Olam became more responsive to investors and won increased backing from Singapore sovereign wealth fund Temasek.

A slowdown in China's economy would lead to "considerable stress" at the lender, Block said, triggering a 1.3 per cent drop in the bank's shares in Hong Kong.

"He has very little ammunition in his gun to shoot at Standard Chartered at this point," said Jim Antos, an analyst at Mizuho Securities Asia.

The bank has increased its loan book to the mining industry by about 22 per cent, compared with 6 per cent growth in its total wholesale book, Block said.

The mainland economy has grown less than 8 per cent from a year earlier for four quarters, the longest streak in at least 20 years, reaching 7.7 per cent in the first three months of this year.

Block said that while Standard Chartered's business was diversified across varying emerging markets, when China's economy slows down, the correlation in the London-based bank's loan books would be very high.

"We think this is a very nice way to play the eventuality of the China unwind," Block said. A spokeswoman for Standard Chartered declined to comment.

The yield on the bank's US$2 billion of 3.95 per cent notes due 2023 has risen 0.11 percentage point to 3.804 per cent since Friday, prices quoted by Maxim Group on Bloomberg show.

Block's reports starting in 2010 triggered US$7 billion in losses for Chinese stocks in two years. Tree plantation operator Sino-Forest plunged 74 per cent before filing for bankruptcy.