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SCMP Reporter

Standard Chartered, Hong Kong's fourth largest bank by assets, is bringing its shares to town at last. But the arrival of the bank, which has had a presence in the city since 1859, is prompting yawns rather than cheers from fund managers.

'It's not particularly exciting as it's already listed in London,' said Edmund Harriss, who manages a Hong Kong fund for Investec Asset Management.

He said he was unlikely to subscribe to the share offer, which opens today and ends on Thursday.

The London listing constrains Chartered from offering a bargain-basement price or gimmicks such as bonus shares for its Hong Kong offering. Consequently there is little promise for investors hoping to see quick gains by subscribing to the offer.

'I don't see a whole lot of upside on the issue,' Celestial Asia Securities research head Herbert Lau Chung-kwan said.

Chartered needs to offer something attractive from a longer-term perspective. But again it comes up short against other banks listed on the exchange.

'HSBC [Holdings] seems to be a safer bet. [It] has a slightly better earnings track record,' said Martin Lau, a fund manager with First State Investments who is also likely to pass up the offer.

Chartered was expected to sell for 1.9 times book value, a discount to HSBC's 2.1 times, said Kenny Tang Sing-hing, an associate director at Tung Tai Securities.

However, Chartered will be on a forward price-earnings ratio of 17 times, making it more expensive than HSBC's valuation of 15 times.

'I think the valuation is not too cheap,' Mr Tang said.

While the bank can bill itself as having sophisticated management and operational procedures, its actual return on equity falls in the middle of a range of peers.

Its return on equity this year is expected to be 11.1 per cent, according to DBS Vickers Securities. That looks better than the 7.7 per cent for Singapore's DBS Bank or the 9.6 per cent for SAR-listed Bank of East Asia. But it falls behind the 22.2 per cent for Hang Seng Bank or the 21.3 per cent for London's Lloyds TSB.

Chartered has positioned itself as a leader in emerging markets. It has a strong presence in Singapore, Malaysia, Thailand and India, and is one of the biggest foreign banks in Africa.

That would suggest growth potential but also plenty of risks. The nature of the emerging markets beast has meant some unpredictable earnings and resulted in a more volatile share.

In Hong Kong, which accounts for a third of pretax earnings, the bank has bent its strategy towards retail banking and has become the leader in issuing credit cards. With charge-offs from credit cards hitting record rates amid Hong Kong's chronically deflating economy, that position for now looks more of a liability than an asset.

'Its high exposure to consumer banking has given rise to an above-average net interest margin and strong fee income,' said Tony Liu, an analyst with DBS Vickers.

'[But] higher bad-debt provisions vis-a-vis its peers also put pressure on profitability.'

Some investors may be tempted to buy the bank, believing it may be a takeover target for a global financial powerhouse looking to bolt on some emerging markets exposure.

But the takeover story had been doing the rounds for more than a dozen years, Mr Liu said.



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HSBC

No-gimmicks Chartered listing offers buyers little prospects