Standard Chartered, the FTSE 100-listed Asia-focused bank, sprang a surprise on the City yesterday with a £1bn cash call as it smashed the City’s forecasts with a 10 per cent rise in profits to $2.84bn (£1.7bn).
The capital raising, at £13.60 a share, is the second time the bank has approached the markets in less than a year. Explaining the move, its chief executive, Peter Sands, said: “You either get accused of surprising people or you get accused of doing it [raising cash] too late. But we also surprised people with our results which were good.”
Mr Sands said his bank had not approached the markets because it had to. He said that the company believed it had scented an opportunity and that the money raised would be used to fuel growth in its fast-expanding Asian operations.
“We’ve done this to seize the opportunity that we see from the financial crisis. As we look across the system, we have one of the strongest balance sheets in the world. This gives us the framework to fuel organic growth and take advantage of the opportunities we see in Asia and around the world.”
Asia is widely seen as the region that will ultimately lead the world out of the economic slump created by the ongoing financial crisis. There was immediately speculation that Standard’s move would herald an acquisition spree.
Mr Sands stressed that the cash should not be seen as giving Standard Chartered a war chest with which to fund deals, even though the company is frequently linked to targets in the region.
However, the company has proved willing to act where it has seen a good opportunity and many rivals have been forced to withdraw from the region or scale back their ambitions as they have grappled with huge losses from bad loans. The earlier capital raising was in November, when the bank took in £1.8bn through a rights issue.
The profits surge was fuelled by wholesale banking, where operating profits grew by more than a third to $2.25bn. However, retail banking suffered, with profits tumbling by 57 per cent to $348m.
Like many banks, Standard Chartered has found this business tough going with low interest rates depressing the spread between what it pays out on deposits and what it takes in from loans. Low interest rates have also put savers off while equity-linked products have not been selling as a result of volatile and falling stockmarkets around the world.
“This should pick up as interest rates recover and the world economy recovers,” said Mr Sands. “We are pleased with how the business is going. We have delivered record profits in the first half of 2008 and record profits in the first half of 2009.”
At the same time, impairment charges on bad loans more than doubled to $1.09bn from $465m in June last year and from $865m at the end of December. This was broadly in line with the bank’s guidance.
Ian Gordon, analyst with Exane BNP Paribas, said: “The results were outstanding. Bad debts were higher but well within guidance. Overall this is a good story. The surprise is the capital raising because you have to ask why they are doing it.”
Shares in the bank suffered from the cash call, finishing down 108p at £13.28, which made the bank the biggest faller on the FTSE 100 in percentage terms by some margin.
However, Mr Gordon said that while he questioned the need for the bank to raise money again, he believed it should thrive from here and that the share-price fall was overdone.
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