Yesterday, Standard Chartered became the latest in a long string of banks to tap investors for capital, announcing it would seek GBP1.779 billion (HK$20.67 billion) from existing shareholders through a rights issue. But whereas recent attempts by other banks to raise capital have smacked of last-ditch desperation, StanChart's cash call looks more like a prudent precaution against approaching hard times.
Over the last year, StanChart has appeared relatively stable compared with other international banks. With its focus on providing Asian customers with old-fashioned banking services such as corporate treasury, smaller company lending and trade finance, it has largely avoided the sort of entanglement with subprime-backed structured products that have inflicted punishing losses on so many other institutions.
Even so, its share price has suffered. Before their suspension yesterday, StanChart's Hong Kong-listed shares were trading at HK$88, down 72 per cent from their record high reached in December last year (see first chart below).
That's a gut-churning fall, greater even than the bank suffered during the Asian financial crisis of 1997-98. But compared with, say, Citigroup, whose shares on Friday were trading 93 per cent below their late-2006 peak, StanChart's performance looks relatively respectable.
In contrast to its peer group, the bank's businesses have held up well. First-half profits were a record US$7 billion. And although earnings from the bank's Korean subsidiary - 14 per cent of last year's group profit - will suffer heavily from the 30 per cent fall in the won since the beginning of July, yesterday StanChart claimed that it 'has continued to perform strongly in the second half'.
With a loan-deposit ratio of 86 per cent, the bank says it is liquid, its asset quality remains good and it continues to attract deposits.
Yet, with the International Monetary Fund forecasting that economic growth in emerging Asia - where StanChart makes 75 per cent of its profit - will slump to just 6.5 per cent next year from 9.5 per cent last year, the bank's bosses must be painfully reminded of the Asian crisis, when heavy bad loan provisions meant earnings per share suffered two consecutive years of brutal contraction (see second chart).
