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Standard Chartered (LON:STAN) is a bank and financial holding company focused on the Asian, African and Middle Eastern markets. The company offers a range of financial services via its subsidiaries and had $437 billion in total assets at the end of 2009.^[1] Its revenues come from 3 main sources: a) interest on loans provided; b) fees for services rendered; and c) trading income. In 2009, Standard Chartered had net interest income of $7.62 billion, service fee income of $3.37 billion and trading income of $2.89 billion^[2] The company's single biggest business is consumer banking in Hong Kong, while its largest regional operation is in India, where 83 branches and 18,000 employees make it the largest foreign bank in the country.^[3] Standard Chartered has consistently been ranked among the top FTSE 100 companies by market capitalization and is currently listed on both the London Stock Exchange and Hong Kong Stock Exchange.^[4]

In May 2007, the company launched Standard Chartered Private Bank headquartered in Singapore.^[5] In its first 15 months, it managed to reach $35.0 billion in assets under management (AUM) across 19,000 customer accounts and, in July 2008, was named the Global Best Private Bank by Euromoney.^[6][7] Because Standard Chartered operates primarily in emerging markets, it has remained relatively untouched by the credit crunch and financial crisis that affected many of its American and European competitors.

Company Overview

Although Standard Chartered's global headquarters are in London, it operates internationally and focuses heavily on Asia, Africa and the Middle East. The company provides corporate and institutional clients with services in trade finance, cash management, lending, foreign exchange and corporate finance. For individual clients, it offers a range of products and services, such as credit cards, personal loans, mortgages, deposit taking and wealth management.

On February 29, 2008, Standard Chartered completed the acquisition of American Express Bank, a former subsidiary of the American Express Company, for $823 million.^[8] Other acquisitions since July of 2007 include Pembroke Group (an aviation finance specialist based in Ireland), Harrison Lovegrove (an oil and gas M&A advisory boutique based in England), South Korea's Yeahreum Mutual Savings Bank, A Brain Co. (a fund administration company based in South Korea), UTI Securities (a brokerage and advisory firm based in India), Hsinchu International Bank (a bank in Taiwan) and Asia Trust International Corporation (a bank in Taiwan).^[9]

Business and Financial Metrics

In 2009, Standard Chartered made $7.62 billion in net interest income and $7.56 billion in net non-interest income for a total of $15.2 billion in operating income.^[2] Profit for the year was $3.5 billion^[2] Most of the gains in profit were attributable to increases in net service fee income as well as trading income.

Business Segments

Standard Chartered divides its operations into two segments: a) Wholesale Banking; and b) Consumer Banking.

Wholesale Banking

Wholesale Banking offers three product groups: i) Lending and Portfolio Management; ii) Global Markets; and iii) Transaction Banking. In 2009, the Wholesale Banking segment made $9.3 billion in operating income and a net income of $4.1 billion.^[11] The largest contributor to the increase in income was the Global Markets segment, with its income increasing $1.6 billion in 2009. The Global Markets segment was able to increase income significantly due mostly to its sales and trading team which earned $946 million more in 2009.^[11]

Consumer Banking

The Consumer Banking segment offers three product groups: i) Credit Cards, Personal Loans and Unsecured Lending; ii) Wealth Management and Deposits; and iii) Mortgages and Auto Finance. In 2009, the Consumer Banking segment made $5.63 billion in operating income and $867 million in net income, compared to $6.0 billion and $1.1 billion respectively.^[12] These declines were partially attributed to a $557 million decline in its Wealth Management and Deposits subsegment as a result of lower demand for wealth management products combined with lower returns on deposits from low interest rates.^[13]

Key Trends and Forces

Asset-backed securities represents less than 1%of the company's total assets^[14]

In 2009, Standard Chartered's portfolio of asset-backed securities, including mortgage-backed securities, amounted to less than 1% of the company's total assets. Furthermore, Standard Chartered has no exposure to the U.S. subprime market. As a result, Standard Chartered was largely unaffected by the subprime lending market downturn that led to the credit crunch and financial crisis. However, in spite of the conservative balance sheet, Standard Chartered wrote down $102 million in impairment charges related to asset backed securities.^[15]

80% of profits come from Wholesale Banking

During 2009, the Wholesale banking segment earned $4.1 billion in operating income, representing approximately 80% of the entire company's profits.^[11] However, the company states that much of its deposits come from clients in their Consumer Banking segment. As a result, the earnings of the Wholesale Banking segment rely in part on the steady source of deposits from the Consumer Banking segment. As such, the low earnings of the Consumer Banking segment may not accurately reflect the true value it is adding to Standard Chartered.

The company's Private Bank is an organic growth driver

In May 2007, Standard Chartered started its Private Bank headquartered in Singapore. By December 2007, the Private Bank had $10 billion in assets under management (AUM) in 7 market areas.^[16] Notably, 28% of this $10 billion in AUM came from 1,300 new clients.^[17] By July 2008, the Private Bank had $35 billion in AUM in 17 market areas, largely due to the acquisition of American Express Bank.^[18] The Private Bank was also named Global Best Private Bank by Euromoney for its performance in 2007/08.^[7]

The company is aggressively hiring while its competitors layoff thousands

In March 2009, Standard Chartered said that it had no plans to cut jobs, even as competitors like HSBC Holdings and Barclays cut their headcounts by 6,100 and 4,500 respectively.^[19] Instead, the company announced that it would be hiring aggressively, noting that a particular focus would be relationship managers for its Private Bank.^[20] Due largely to its circumvention of the subprime lending debacle, credit crunch and financial crisis that forced many of its competitors to writedown toxic assets from their balance sheets, Standard Chartered became England's largest bank by market cap in March 2009.^[19]

Competition

Since Standard Chartered operates in over 70 countries across 7 continents, it has a long list of competitors in each region. However, given that the company focuses on the Asian, African and Middle Eastern markets a few large international competitors, including Citigroup (C), HSBC Holdings (HBC), and J P Morgan Chase (JPM) compete with it in these regions.

• HSBC Holdings (HBC), with total assets of $2.36 trillion, is one of the largest banking and financial services organizations in the world. It operates in 86 countries and is listed on 5 stock exchanges. In 2009, the company had a net income of $5.83 billion.^[21]
• JP Morgan Chase (JPM) is one of the world's largest financial services companies, offering both investment banking as well as commercial banking, and is the third largest bank in the United States.^[22] In 2009 JP Morgan Chase had $115 billion in total revenues and a net income of $11.7 billion.
• Citigroup (C), another of the commercial banking giants, is the fourth largest bank in the United States in terms of deposits.^[22] During 2009, Citigroup posted a net loss of $1.61 billion from its 2009 total revenues of $110 billion.

References

1. ↑ STAN Annual Report 2009 Pg. 2
2. ↑ ^{2.0 2.1 2.2 2.3 2.4} STAN Annual Report 2009 Pg. 112
3. ↑ STAN Annual Report 2007 Pg. 7
4. ↑ "Business & Strategy", Standard Chartered Website
5. ↑ "StanChart Singapore move", The Hong Kong Standard
6. ↑ STAN Interim Report 2008 Pg. 4
7. ↑ ^{7.0 7.1} "The Standard Chartered Private Bank named Global Best Private Bank", Standard Chartered Website
8. ↑ "American Express Company completes sale of American Express Bank Ltd to Standard Chartered Plc", American Express Company Website
9. ↑ STAN Annual Report 2007 Pg. 19
10. ↑ ^{10.0 10.1} STAN Annual Report 2007 Pg. 13
11. ↑ ^{11.0 11.1 11.2} STAN 2009 Annual Report Pg. 32
12. ↑ STAN Annual Report 2009 Pg. 24
13. ↑ STAN Annual Report 2009 Pg. 26
14. ↑ STAN 2009 Annual Report Pg. 45
15. ↑ STAN 2009 Annual Report Pg. 19
16. ↑ STAN 2007 Annual Report Pg. 8
17. ↑ STAN Annual Report 2007 Pg. 8
18. ↑ "The 2008 Guide to Private Banking and Wealth Management", Euromoney.
19. ↑ ^{19.0 19.1} "Standard Chartered Had ‘Strong’ First Two Months", Bloomberg
20. ↑ "Standard Chartered To Hire More Staff As Competitors Retrench", Bloomberg
21. ↑ HSBC Posts Lower-Than-Estimated 2009 Profit on Europe. Jon Menon and Andrew MacAskill. Bloomberg.
22. ↑ ^{22.0 22.1} FDIC Summary of Deposits: June 30, 2009