Published: 13 Oct 2010
Last Updated: 19 Aug 2013
As a bank that has enjoyed explosive growth in emerging markets in recent years, Standard Chartered knows a thing or two about staying ahead of the curve. So perhaps it's no surprise that it's decided to raise an extra £3.3bn of capital - even though it doesn't technically need to yet. The bank said the money would boost its coffers in preparation for the new Basel III rules, and ensure it can 'continue to seize opportunities' in its core markets. Equally, since lots of the banks are likely to have to do this at some point, it makes sense to get it out of the way before investor fatigue sets in...
What's interesting about this is that Standard Chartered is going to the market before it knows precisely what the Basel III rules will actually look like. Unlike many of its competitors, the bank hasn't had to tap the Government or the central banks for funds. And, thanks partly to a £1bn cash-call last summer, it already has a stronger capital position than most: as of the end of June, it had a tier one ratio of about 9%. Even though this might fall slightly in the light of the new rules, it's still well above the 7% minimum required. Yet this new cash-call (in which it's issuing one new share for every eight held, at a one-third discount to yesterday's closing price) will boost its ratio by about 2 percentage points.
So why does it need all this money? Well, CEO Peter Sands says it's basically a pre-emptive strike. Although the precise implications of Basel III aren't clear yet, it's pretty clear which way the wind is blowing: the banks will be forced to build up larger capital buffers, and the bigger banks will have to build up even bigger ones. And unless it raises additional funds, Sands argues, that could mean missing out on growth opportunities in its core emerging markets (since it would have to keep the money in the bank rather than investing).
The bank saw profits jump 10% in the first half, and according to an interim statement, income levels have been running well above that run rate in the second half. So Sands’ theory is that it needs this extra cash to keep growing at the same rate. This has naturally led to suggestions that he’s got some potential targets in mind – but he denies this, insisting the money is not a ‘warchest for acquisitions’ but a way to fund organic growth (though don't be surprised to see some smaller deals).
Of course, it's always nice to ask investors for money from a position of strength (on the 'go when you can, not when you have to' principle). And since it will inevitably see its capital requirement increase at some point, it might as well get on with it. Analysts at UBS predicted recently that Basel III would ultimately require European banks to raise an extra $1trn. So it makes a lot of sense to be among the first to pass the cap around, before investors start running out of readies...
What's interesting about this is that Standard Chartered is going to the market before it knows precisely what the Basel III rules will actually look like. Unlike many of its competitors, the bank hasn't had to tap the Government or the central banks for funds. And, thanks partly to a £1bn cash-call last summer, it already has a stronger capital position than most: as of the end of June, it had a tier one ratio of about 9%. Even though this might fall slightly in the light of the new rules, it's still well above the 7% minimum required. Yet this new cash-call (in which it's issuing one new share for every eight held, at a one-third discount to yesterday's closing price) will boost its ratio by about 2 percentage points.
So why does it need all this money? Well, CEO Peter Sands says it's basically a pre-emptive strike. Although the precise implications of Basel III aren't clear yet, it's pretty clear which way the wind is blowing: the banks will be forced to build up larger capital buffers, and the bigger banks will have to build up even bigger ones. And unless it raises additional funds, Sands argues, that could mean missing out on growth opportunities in its core emerging markets (since it would have to keep the money in the bank rather than investing).
The bank saw profits jump 10% in the first half, and according to an interim statement, income levels have been running well above that run rate in the second half. So Sands’ theory is that it needs this extra cash to keep growing at the same rate. This has naturally led to suggestions that he’s got some potential targets in mind – but he denies this, insisting the money is not a ‘warchest for acquisitions’ but a way to fund organic growth (though don't be surprised to see some smaller deals).
Of course, it's always nice to ask investors for money from a position of strength (on the 'go when you can, not when you have to' principle). And since it will inevitably see its capital requirement increase at some point, it might as well get on with it. Analysts at UBS predicted recently that Basel III would ultimately require European banks to raise an extra $1trn. So it makes a lot of sense to be among the first to pass the cap around, before investors start running out of readies...
