Commentaries
Now raising intellectual capital
from Margaret Doyle:
Standard Chartered’s surprising placing
Standard Chartered may have delivered record profits for the first half of 2009, but the shine has been taken off this by the emerging markets bank’s unexpected 1 billion pound share placing. The shares were trading almost 8 percent lower in the afternoon, at 1323p.
Some discount was to be expected given that the issue was not offered back to existing shareholders. But with StanChart’s market capitalisation of around 27 billion pounds, this should only have lopped around 3.5 percent off the price. The fact that it is almost twice that gives a sense of investors’ disaffection.
StanChart says that it wants the cash “to support the development and growth …in its key strategic markets in Asia, Africa and the Middle East”. It is true that the developing world, particularly Asia, appears to be emerging from this crisis much more robustly than western economies.
Moreover, StanChart can argue that, unlike many periods over the past couple of years, the markets are now open and its shares are trading at more than double their March lows. After all, when it raised 1.8 billion pounds through a rights issue last December - to bolster capital - the new shares were offered at 390p apiece, almost a 50 percent discount to the then price.
StanChart may use the proceeds of the latest proceeds for organic growth. But if the bank is contemplating a specific deal,it does seem odd that it is raising funds ahead of that. After all, the beauty of a placing like this is that it is super-fast. If StanChart trusts its instincts to find a good deal, why not announce deal and share placing simultaneously?
Interestingly, HSBC, StanChart’s big, emerging market rival, is keeping its own hands firmly in its pockets. It is using the $17.8 billion proceedings from its mammoth spring rights issue to bolster capital, with the occasional small deal. In an interview with Reuters in Hong Kong today, Vincent Cheng, the bank’s Asia-Pacific chairman, said that acquisition prospects in Asia were too expensive.
There is an old saying that if you have money it will “burn a hole in your pocket.” This risk is that, once StanChart has collected its 1 billion pound placing proceeds, it may feel compelled to do a deal, whether it is a good one or not.
Barclays’ yo-yo balance sheet
Talk about deleveraging. By far the most striking number in Barclays’ first-half profits concerns its balance sheet:
Our total assets decreased by £508bn to £1,545bn over the first half of 2009.
Given the stated desire by regulators – and investors – for banks to shrink their balance sheets, a 25 per cent reduction in total assets in the space of just six months has to be applauded, right?
Standard Chartered’s Dick Cheney
When Mervyn Davies suddenly quit Standard Chartered in January to become a trade minister in Gordon Brown’s government, the bank did what every big company is supposed to do and started a formal search for his replacement. A nominations committee was convened, led by acting chairman John Peace. Headhunters were hired. Lists were drawn up.
A string of high-profile candidates were rumoured to be in line for the job, including Sir Win Bischoff, the former Citigroup chairman. There were even suggestions that Mervyn – now Lord – Davies might come back after the next election.
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The Wall
