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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 $435 billion in total assets at the end of 2008.^[1] Its revenues come from 3 main sources: a) interest on loans provided; b) fees for services rendered; and c) trading income. In 2008, Standard Chartered had net interest income of $7.4 billion, service fee income of $2.9 billion and trading income of $2.4 billion^[2] The company's single biggest business is consumer banking in Hong Kong, which generated $1.2 billion or 8.3% of its 2008 operating income. 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] The company's return on assets (ROA) in 2008 was 1.05%, compared to 0.31% for J P Morgan Chase, 0.37% for HSBC Holdings and 0.14% for Citigroup.^[5][6][7][8]

In May 2007, the company launched Standard Chartered Private Bank headquartered in Singapore.^[9] Over 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.^[10][11] 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. As of December 2008, the company had $4.5 billion in asset-backed securities on its balance sheet, representing 0.9% of its total assets.^[12] Nonetheless, in 2008, it still recorded $473 million in writedowns related to asset-backed securities, up 90.0% from $249 million in 2007.^[12]

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 29 February 2008, Standard Chartered completed the acquisition of American Express Bank, a former subsidiary of the American Express Company, for $823 million.^[13] Since July 2007, the company has also acquired 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) and Asia Trust International Corporation (a bank in Taiwan).^[14]

Business and Financial Metrics

Total Revenue and Net Income for Standard Chartered between 2005 and 2008 has steadily grown.^[15][5]

Through the first half of 2008, Standard Chartered earned 72.9% of its operating profit from its Wholesale Banking segment.^[16]

In 2008, Standard Chartered made $7.4 billion in net interest income and $6.6 billion in net non-interest income for a total of $14.0 billion in operating income.^[2] Net income for the year was $4.6 billion, up 12.9% from $4.0 billion in 2007.^[2] The company saw broad-based growth in the Asia Pacific region (16.0% growth in operating income), Middle East (21.4% growth in operating income), Africa (14.3% growth in operating income), and the Americas, UK and Europe (200.2% growth in operating income, due primarily to the acquisition of American Express Bank).^[17]

The Wholesale Banking segment did particularly well in 2008, increasing operating income by $2.2 billion or 42.8% as compared to 2007.^[18] This growth was partially offset by a 22.5% increase in the company's operating expenses, of which 56.4% was driven by higher staff costs.^[19] There was also $65 million in integration expenses related directly to the acquisition of American Express Bank.^[20]

Business Segments

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

Wholesale Banking (55.7% of 2008 operating income, 72.9% of operating profit)

Wholesale Banking offers three product groups: i) Lending and Portfolio Management; ii) Global Markets; and iii) Transaction Banking. In 2008, the Wholesale Banking segment made $7.5 billion in operating income and $3.0 billion in net income, up 42.8% and 27.9% respectively from 2007.^[16] In the same year, Lending and Portfolio Management revenues grew by $14 million or 2.6% due to a 47.1% increase in gross lending.^[18] Global Markets revenues grew by $1.6 billion or 60% as increased sales and larger transactions pushed up fee revenues.^[18] Transaction Banking revenues increased $630 million or 31% on account of improved margins and strong growth in trade origination.^[18]

Consumer Banking (44.2% of 2008 operating income, 27.1% of operating profit)

The Consumer Banking segment also offers three product groups: i) Credit Cards, Personal Loans and Unsecured Lending; ii) Wealth Management and Deposits; and iii) Mortgages and Auto Finance. In 2008, the Consumer Banking segment made $6.0 billion in operating income and $1.1 billion in net income, up 2.5% and down 33.5% respectively from 2007.^[23] Credit Cards, Personal Loans and Unsecured Lending revenues grew by $17 million or 1%, a sharp drop from the 16% increase experienced in 2007.^[24][25] The company attributed this slowdown to a shift in focus towards less risky portfolios, particularly in Korea, Thailand, India and Pakistan.^[25] Wealth Management and Deposits revenues grew $168 million or 6%, but there was a dramatic slowdown from the first 6 months of 2008 when growth was 14%.^[25][26] The company attributed this slowdown to falling equity markets and customer risk aversion following the collapse of Lehman Brothers in the latter stages of 2008. Mortgages and Auto Finance revenues grew by $22 million USD or 2%, again slowing down from the first 6 months of 2008 when growth was 9%.^[26] The company attributed this slowdown to falling net interest margins between the Prime Rate and the LIBOR which negatively impacted revenues from Hong Kong.^[25]

Key Trends and Forces

Asset-backed securities represented 0.9% of the company's total assets

In 2008, Standard Chartered's portfolio of asset-backed securities, including mortgage-backed securities, amounted to $4.5 billion or 0.9% of the company's total assets, down from $5.9 billion or 1.7% of total assets in 2007.^[12] This portfolio consisted primarily of residential mortgage-backed securities (25%), commercial mortgage-backed securities (18%), collateralized debt obligations (14%) and other asset-backed securities (43%).^[12] With less than 1% of its total assets in asset-backed securities, Standard Chartered was largely unaffected by the subprime lending market downturn that led to the credit crunch and financial crisis. In July 2008, 97% of its asset-backed portfolio was rated A or better, with 74% rated AAA.^[27] However, this portfolio had deteriorated by December 2008, when 81% of its portfolio was rated A or better, with 67% rated AAA.^[12] In 2008, total writedowns on Standard Chartered's portfolio of asset-backed securities was $473 million, up 90% from $249 million in 2007.^[12]

40.8% of the company's profit before tax came from Hong Kong and India

Breakdown of Profit before Tax by Region.^[17]

In 2008, Standard Chartered's profit before tax from Hong Kong and India was $2.0 billion or 40.8% of its total profit before tax.^[17] The company is, therefore, exposed to the economic cycles and fluctuations in these 2 countries. Keeping this in mind, Standard Chartered expanded its presence and increased profit before tax in many other regions, including Singapore (66.8%), the Middle East (24.5%), Korea (10.5%) and Africa (4.7%).^[17] As a result, the company saw this dependence decrease in 2008 as percentage of profit before tax contributed by Hong Kong and India fell from 46.6% on 30 June to 40.8% on 31 December.^[17]

3.5% of the company's total deposits came from India

In 2008, $10.5 billion or 3.5% of Standard Chartered's total deposits came from India, yet profit before tax from this country was $943 million or 19.6% of total profit before tax.^[28][17] In comparison, Hong Kong accounted for $64.1 billion or 21.3% of the company's total deposits and $1.0 billion or 21.1% of total profit before tax.^[28][17] This difference between India's contribution to the company's total deposits and total profit before tax could represent a large growth opportunity.

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.^[29] Notably, 28% of this $10 billion in AUM came from 1,300 new clients.^[30] By July 2008, the Private Bank had $35 billion in AUM in 17 market areas, largely due to the acquisition of American Express Bank.^[31] The Private Bank was also named Global Best Private Bank by Euromoney for its performance in 2007/08.^[11]

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.^[32] Instead, the company announced that it would be hiring aggressively, noting that a particular focus would be relationship managers for its Private Bank.^[33] 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.^[32]

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 handful of large, international competitors, including Citigroup (C), HSBC Holdings (HBC), Barclays (BCS), and J P Morgan Chase (JPM), compete with it in these regions.

• HSBC Holdings (HBC), with $2.5 trillion in total assets, is one of the largest banking and financial services organizations in the world.^[7] It operates in 86 countries and is listed on 5 stock exchanges. In 2008, the company had net interest income of $42.6 billion, operating income of $46.0 billion and net income of $9.3 billion.^[7]
• Citigroup (C), with total assets of $1.9 trillion, is also one of the largest banking and financial services organizations in the world. In 2008, the company had total revenues of $52.7 billion, but made a net loss of $27.7 billion.^[8]
• Barclays (BCS), with total assets of $3.0 trillion, is another large banking competitor.^[34] In 2008, its total revenues were $33.9 billion and profit after tax was $7.7 billion.^[35]
• J P Morgan Chase (JPM), with total assets of $2.2 trillion, is another banking and financial services giant. In 2008, the company had total revenues of $67.3 billion and net income of $5.6 billion. ^[6]

Note: Financials for Barclays (BCS) are reported in British Pounds (£). For comparative purposes, Barclays (BCS) data in the above table was translated to USD using the GBP/USD exchange rate of 1.46697 on 2 April 2009.^[36]

References

1. ↑ STAN Annual Report 2008 Pg. 3
2. ↑ ^{2.0 2.1 2.2 2.3} STAN Annual Report 2008 Pg. 11
3. ↑ STAN Annual Report 2007 Pg. 7
4. ↑ "Business & Strategy", Standard Chartered Website
5. ↑ ^{5.0 5.1} STAN Annual Report 2008 Pg. 42
6. ↑ ^{6.0 6.1} JPM 10-K 2008 Item 6 Pg. 26
7. ↑ ^{7.0 7.1 7.2} HBC Annual Report 2008 Pg. 4
8. ↑ ^{8.0 8.1} C 10-K 2008 Pg. 4
9. ↑ "StanChart Singapore move", The Hong Kong Standard
10. ↑ STAN Interim Report 2008 Pg. 4
11. ↑ ^{11.0 11.1} "The Standard Chartered Private Bank named Global Best Private Bank", Standard Chartered Website
12. ↑ ^{12.0 12.1 12.2 12.3 12.4 12.5} STAN 2008 Annual Report Pg. 33
13. ↑ "American Express Company completes sale of American Express Bank Ltd to Standard Chartered Plc", American Express Company Website
14. ↑ STAN Annual Report 2007 Pg. 19
15. ↑ STAN Annual Report 2006 Pg. 34
16. ↑ ^{16.0 16.1} STAN Annual Report 2008 Pg. 16
17. ↑ ^{17.0 17.1 17.2 17.3 17.4 17.5 17.6} STAN Annual Report 2008 Pg. 47
18. ↑ ^{18.0 18.1 18.2 18.3} STAN Annual Report 2008 Pg. 17
19. ↑ STAN Annual Report 2008 Pg. 12
20. ↑ STAN Interim Report 2008 Pg. 7
21. ↑ STAN Annual Report 2006 Pg. 26
22. ↑ ^{22.0 22.1} STAN Annual Report 2007 Pg. 13
23. ↑ STAN Annual Report 2008 Pg. 13
24. ↑ STAN Annual Report 2007 Pg. 16
25. ↑ ^{25.0 25.1 25.2 25.3} STAN Annual Report Pg 14
26. ↑ ^{26.0 26.1} STAN 2008 Interim Report Pg. 9
27. ↑ STAN Interim Report Pg. 28
28. ↑ ^{28.0 28.1} STAN Annual Report 2008 Pg. 49
29. ↑ STAN 2007 Annual Report Pg. 8
30. ↑ STAN Annual Report 2007 Pg. 8
31. ↑ "The 2008 Guide to Private Banking and Wealth Management", Euromoney.
32. ↑ ^{32.0 32.1} "Standard Chartered Had ‘Strong’ First Two Months", Bloomberg
33. ↑ "Standard Chartered To Hire More Staff As Competitors Retrench", Bloomberg
34. ↑ BCS 2008 Annual Report Pg. 26
35. ↑ BCS 2008 Annual Report Pg. 16
36. ↑ GBP/USD Exchange Rate, X-Rates.com