Standard Chartered Bank

As HSBC reports healthy profits, Standard Chartered's woes are a reflection of wider malaise in emerging Asian economies

PUBLISHED : Wednesday, 11 November, 2015, 1:52am
UPDATED : Wednesday, 11 November, 2015, 6:01pm

The shares of Standard Chartered suffered another sell-off last Friday after Fitch Ratings downgraded the British lender's default risks. Over the past week, the bank has been heavily punished by investors after it announced an unexpected pre-tax quarterly loss of US$139 million, when analysts had expected a consensus profit of US$903 million. The value of its shares has more than halved in three years.

In contrast, rival HSBC, which operates more extensively in developed economies, reported a healthy profit for the third quarter. As one of Hong Kong's three note-issuing banks, StanChart attracts intense market interest here.

Under new chief executive Bill Winters, the bank is axing 15,000 jobs and is raising capital by asking investors for US$5.1 billion, though the rights issue may be delayed for several days, according to an announcement made yesterday. It is exiting some high-risk commodity and derivative markets, in addition to scaling back operations in places such as South Korea and Dubai.

Once a darling of investors, the bank's long list of troubles reflect the slowdown in emerging markets, especially those in Asia in which it is a specialist. Higher levels of bad debt, falling profit margins and weakening Asian currencies have all hurt the bank's profitability. These are simply symptoms of the larger economic malaise from which China and other emerging markets in Asia from India to Indonesia are suffering.

At the height of the financial crisis, large Western banks such as HSBC had to raise capital from shareholders. Some US banks such as Citigroup had to be bailed out. StanChart won praise for having navigated its way out of the crisis relatively unscathed. But as the crisis in developed Western economies subsided, emerging markets began to show cracks.

Many Asian companies took advantage of low interest rates to go on a borrowing binge. As their economies slow, many are finding it hard to pay back loans. Given StanChart's loan exposure, it's inevitable it is caught up in the slowdown. So, is it 1997 over again? Most likely not.

Asian economies are in much better shape, and carry far less debt than during the Asian crisis. Likewise StanChart's troubles, which although serious, are not unmanageable.

Like many people in Asia, the bank's investors will have to hold on to their seats and hope to ride out the economic storm.