Standard Chartered plc Ordinary US$0.50 (STAN)

Company overview

Standard Chartered is named after two banks which merged in 1969. They were originally known as the Standard Bank of British South Africa and the Chartered Bank of India, Australia and China. The bank also famously fought off a takeover attempt from what was then Lloyds Bank back in the mid to late 1980s, although the battle resulted in Standard reducing its operations in a number of regions, particularly the US and Africa. Since then, the group has focused on acting as a bridge between the Western developed world and the Asian and emerging economic regions, generating the vast majority of its profits in Asia. The bank employs over 80,000 people in more than 70 countries and is listed on both the London and Hong Kong Stock Exchanges.

HL Comment (8 December 2011)

The group's full year pre-closing trading update (08Dec2011) saw a slowing in revenue growth being highlighted. The crisis in Europe and a resultant move into the haven of the US dollar provided for increased currency headwinds, with depreciating Asian currencies underlying a downgrade to full year revenue estimates. Furthermore, the environment in India had remained difficult, conditions in Korea had slowed, whilst the group's markets continued to be targeted by rivals. Nonetheless, management noted that the bank was still "on course to deliver another strong set of full year results". Income growth remained resilient and well diversified, underpinned by high levels of activity across the bank's businesses. Customer deposits were again expanded, cost containment remained a focus, whilst geographical diversification continued to be pursued.

Negative Points:

• Foreign exchange headwinds had increased thanks to depreciating Asian currencies.
• Many of the markets in which the group operates are strategic growth priorities for rivals. This competition has placed pressure on staffing costs.
• Uncertainty regarding global regulation remains a concern.
• At the Consumer business, mortgage income remains pressured, reflecting both competition and also the impact of increasing interest rates in a number of markets.
• The group's Indian business continues to disappoint. Government regulation and interference, as witnessed by Vodafone on tax issues, remains a challenge.
• Geopolitical developments also provide ongoing risks. Politics and wider regional tensions provide potential difficulties in such places as the Middle East, South Korea and South Africa.
• The valuation is not the potential recovery bargain which rival banks may be.

Positive Points:

• Another strong set of full year results is expected by management.
• Both group businesses exhibited good momentum; client income within Wholesale Banking is expected to grow at around a double digit rate and income for its Consumer Banking division is expected to grow at a double digit rate.
• As of the half year results, the group's core tier one ratio of capital strength (financial cushion) materialised at 11.9% as at the end of June (2011), compared to 9.0% in H1 2010.
• Standard Chartered raised £3.25 billion from a rights issue in October (2010), bolstering its finances ahead of new capital rules and providing firepower to take advantage of new opportunities.
• The company has increased staff numbers dramatically over the past five years, as it focuses on expanding markets in Asia, the Middle East and Africa.
• Unlike other British banks, Standard Chartered did not need a state-funded bailout during the financial crisis. Over 90% of the bank’s employees work outside the UK.

Consensus:

On balance, market consensus opinion denotes a cautious buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: US dollar.