atans1

Posts Tagged ‘Standard Chartered’

Problems at Temasek’s StanChart & DBS/ OCBC ovepaid for HK bank?

In Banks, China, Emerging markets, Hong Kong, Temasek on 30/06/2014 at 4:50 am

Standard Chartered has said first-half operating profits will be 20% lower than a year earlier, blaming a slump in income from its financial markets business.

The warning comes only three months after the Asia-focused lender reported its first fall in annual profits for a decade.

The UK bank had been expected to show a modest bounce-back this year.

But it said tougher regulations and low market volatility had hurt revenues.

Standard Chartered said its interest rate and foreign exchange trading had been particularly hit.

Chirantan Barua, an analyst at Bernsteinm said: “Cyclical headwinds are yet to arrive in full force in the bank’s two key markets – Hong Kong and Singapore. Not that Korea or India is out of the woods either.

“Pack that in with a challenging and uncertain capital regime that won’t be resolved until the end of the year and you have a great deal of uncertainty around the stock.”

http://www.bbc.com/news/business-28031504

StanChart shows the peril of investing in a stock listed overseas overseas that operates internationally. When profits were gd, sterling was weak against all major currencies. When sterling is strong, profits no gd. Note the value of sterling is irrelevant to the underlying profits or losses of  most of bank’s international operations.

——

ON AN afternoon in early summer a prospective customer walked into the gleaming new branch established in Shanghai’s free-trade zone by DBS, a Singaporean bank that, like many of its international rivals, has long touted China’s great promise for its business. The lobby was empty, save for a guard playing a video game. A log showed that the branch was attracting just two or three visitors a day. DBS remains optimistic about China and says that most of its free-trade-zone transactions are routed through other locations. But the torpid atmosphere at the branch points to foreign banks’ struggle to crack open the Chinese market.

—–

To be fair to DBS its New Citizen CEO is not like the FT CEO of OCBC who may have blundered.

OCBC is offering to buy Wing Hang Bank’s shares for 125 Hong Kong dollars (US$16.12) each, in a big bet on China’s sustained economic growth. OCBC hopes the deal will springboard its growth into mainland China through the Hong Kong bank’s cross-border operations, and give it a foothold in Macau.

OCBC and Wing Hang Bank, one of Hong Kong’s last remaining family-owned lenders, began discussions on a possible deal late last year, and in January entered exclusive talks (after ANZ and UOB balked at the family’s asking price), which were extended twice as they argued over price.

The most recent comparable transaction (and bargaining benchmark for the family), the 2013 sale of Chong Hing Bank, went for 2.35 times book value including the value of a special dividend related to Chong Hing’s real estate. Accounting for the increase Wing Hang ascribes to the value of its property, the OCBC offer is closer to 2 times book value, a discount, compared to the Chong Hing deal, considering Wing Hang’s return on equity averaged 11.3% for the past three years, versus 7.8% for Chong Hing, according to Capital IQ.

Still OCBC shareholders were not that happy and its share price suffered.

What is unknown is the value of Wing Hang’s Hong Kong real estate, on some of the busiest shopping streets in the world. These could be worth even more than the bank says. A government index of Hong Kong retail properties has risen 400% over the past decade. Yet the company’s revaluation over the acquisition cost of the property is less than 100%.

If enough of Wing Hang’s minority shareholders refuse the price on offer, however, OCBC might prefer to raise it or offer* or bear the cost of maintaining the Wing Hang listing, and the cost of failing to fully integrate the bank.

Update at 6’00am: Here’s someone who thinks OCBC got sold a dog.

Wing Hang gives it greater opportunity to finance trade between China and other parts of Asia such as Malaysia and Indonesia, where it already has a foothold. Wing Hang’s strong funding base – loans were just 73 percent of deposits at the end of last year – is another advantage, as is its ability to capitalise on the yuan’s growing international popularity. About 17 percent of Wing Hang’s deposits are currently in the Chinese currency.

Nevertheless, the purchase brings risks to OCBC investors. China’s economic slowdown is creating credit wobbles, while Hong Kong’s property boom is bound to have led to some lending excesses. Meanwhile, rising interest rates in the United States could reverse the cheap deposits that have flowed into both Hong Kong and Singapore in recent years. Shareholders, who will probably be asked to help finance the purchase, may pay a high short-term price for OCBC’s long-term China ambition.

 http://blogs.reuters.com/breakingviews/2014/04/01/ocbcs-chinese-ambition-comes-with-hefty-price-tag/

 ————

*OCBC has said the bid, a 50% premium to the then stock price, is generous.

StanChart losing its shine

In Banks, Emerging markets, Temasek on 22/12/2013 at 7:08 am

Standard Chartered had a bad start to the hols. Last Monday, its shares fell sharply on the possibility that it might call for a rights issue in the wake of weakish results. They’ve since recovered but there was another sharp fall on Fridaty, albeit from a much recovered position.

It has also been forced to strip its finance boss of his responsibilities to oversee the lender’s risk division following pressure from the Bank of England.

Richard Meddings, who has been group finance director of Standard Chartered since November 2006, had to hand over governance responsibility of risk to Peter Sands after the Prudential Regulation Authority said it was concerned with Meddings holding two conflicting roles, according to news reports.

In particular, the PRA, the Bank of England’s financial watchdog, was concerned with the potential conflict between Meddings’ finance responsibility and his duty to oversee risk operations.

All this against the background that it is no longer  an ang moh favourite because emerging markets are no longer in fashion. Their economies are slowing while the Western economies are recovering. And the wall of money is returning to the West.

BTW, those readers of TRE who bitch that Temasek lost money on StanChart and say that I didn’t know this fact are daft: all they needed to do is to google up StanChart’s 10 yr price. But if anyone wants to see the numbers: here’s why.

 

Temasek’s Chinese banks pay great dividends but there’s a catch

In Banks, Financial competency, Temasek on 20/08/2013 at 5:01 am

ICBC pays 6.1%, while CCB and BoC pay 6%. If it had AgBank, it would get 6.4%.

Contrast this with the dividend yield it gets from

– DBS: 4.4% (UOB’s yield is 2.9% and OCBC’s is 3.2%)

– Bank Danamon: 2.4%

– StanChart: 3.5% (BTW,  earlier this month the bank said  that it was no longer targeting double digit revenue growth this year. Year-on-year revenue growth in the first six months was less than 5% for the first time in 10 yrs.)

But Chinese bank yields are so gd largely because Chinese banks are not popular with ang mohs: one-tenth share price falls this yr helped produce these yields. http://atans1.wordpress.com/2013/07/02/time-to-worry-about-temaseks-strategy-on-chinese-banks/

And there are gd reasons to be fearful. One is concern that there could be more bad debts building up in the system as the economy slows/

Another: ChinaScope Financial, a research firm, has analysed how increased competition and declining net interest margins will affect banks operating in China. The boffins conclude that the smallest local outfits, known as city commercial banks, and the middling private-sector banks will be hit hardest, but that returns on equity at the big five state banks will also be squeezed (see chart). They think the industry will need $50 billion-100 billion in extra capital over the next two years to keep its capital ratios stable.

The bigger worry for China’s state banks is the signal sent by the PBOC’s move. The central bank has affirmed its commitment to reform. If those reforms include the liberalisation of deposit rates, then something far more serious than a minor profit squeeze will befall China’s banks. Guaranteed profitability would end; banks would have to compete for customers; and risk management would suddenly matter. In short, Chinese bankers would have to start working for a living.

http://www.economist.com/news/finance-and-economics/21582290-chinas-central-bank-has-liberalised-lending-rates-does-it-matter-small-step

And two of China’s four “bad’ banks (they bot portfolios of dud loans from Chinese banks, the last time the Chinese cleaned up their banks in the late 1990s and early noughtie), are planning to raise capital via IPOs. They have impressive returns. But maybe China is preparing for the day it has to recapitalise the banks again. In such a case, the UK and US experience is that the other shareholders get diluted, and can lose serious money. Think UBS and RBS.

Even if there is no recapitalisation, there are likely to be rights issues, something that ang moh fund mgrs don’t like.

But to be fair, this big chart shows a possible reason why Temask is optimistic. Despite loan growth, bad loans are falling. But the economy was growing rapidly. And sceptics point out that the numbers may be flakey. In the 1990s, the real bad loan position was 20%, not the lowish figures reported at the time. Investors forget this ’cause banks were 100% govt owned.

Related (sort of) link: http://wikileaks.org/cable/2009/06/09SINGAPORE588.html

Graphics from FT.

Bank run in Vietnam UPDATE

In Banks, Vietnam on 24/08/2012 at 9:16 am

Depositors in Vietnam have withdrawn hundreds of millions of US dollars from one of the country’s largest banks after the arrest of one of its founders. StanChart has a 15% stake in this bank.

The CEO of Asia Commercial Bank, Ly Xuan Hai, has been arrested on suspicion of committing economic crimes.

What this run shows is that:

– Doing biz in Vietnam can be dangerous if the authorities don’t like you.

– Banks like StanChart and HSBC do biz in some dangerous places and their high capital ratios and conservative loan to deposit ratio have a purpose.  But really do all three S’pore banks need to be among the 10 safest banks in the world?

StanChart: A buy for the bold & canny?

In Temasek on 13/08/2012 at 6:28 am

Looks like Jewish-American NY regulator is a “rogue regulator” in it for the publicity (new boy in town) or to shake down StanChart for US$700m.

Meanwhile some combination of a massive fine (say US$1.5bn),  mgt changes (both looking unlikely as is the  loss of US licence) or Temasek doesn’t want to be on the wrong side of the allegations and wants out (unlikely too), someone like JP Morgan or BoA who covets StanChart’s trade financing biz in Asia and other emerging markets might bid http://www.breakingviews.com/standard-chartered-selloff-has-gone-far-enough/21034299.article

Anyway it is cheap. Trading at about 1.17x book (HSBC trades at 1x book) even after its recovery. It usually trades usually at 1.3x book.

Hurry, hurry before the discount disappears. Buying at this level gives exposure to S’pore and HK where banks trade at around 1.3x book), and Msia and Indonesia (where banks trade at around 2x book minimum) at a discount.

StanChart in v.v. serious trouble

In Corporate governance, Temasek on 07/08/2012 at 5:51 am

Opps spoke to soon abt StanChart http://atans1.wordpress.com/2012/08/04/wheres-the-cheers-for-temasek/ According to the FT, it could lose its NY licence. Price fell 6% on the news. Wonder if our MSM will report this?

Standard Chartered Accused of Hiding Iranian Transfers Calling the British bank a “rogue institution,” New York State’s financial regulator has accused Standard Chartered of enabling Iranian businesses to hide illegally more than $250 billion in transactions, Jessica Silver-Greenberg reports.

Where’s the cheers for Temasek?

In Temasek on 04/08/2012 at 3:20 pm

It got 19% of StanChart in its portfolio.

Bucking the industry trend of weak earnings, the British bank Standard Chartered reported on Wednesday that its net income rose 11.3 percent in the first half of the year on strength in Asia and other emerging markets.

While many of its peers, like Deutsche Bank and Barclays, are scaling back their operations after the global financial crisis, Standard Chartered said it planned to increase its presence in Asia, Africa and the Middle East …

… said that it would open more branches in countries with fast-growing economies, like China and India, and that it was looking to exploit the decrease in its competitors’ trading activity.

http://dealbook.nytimes.com/2012/08/01/standard-chartered-profit-rises-11-in-first-half/?nl=business&emc=edit_dlbkpm_20120801

Why our local banks shld stop wasting resources on China proper

In Banks, China, Investment banking, Temasek on 07/06/2012 at 5:14 am

(Or “Why Temasek’s big bet on Chinese banks makes sense“)

DBS is the 6th largest foreign bank in China proper. It has a strategy of expansion into China. So have UOB and OCBC.

Well, its a tough biz to be in. Non-Chinese banks have only 2% market share. Even HSBC, StanChart and Citi have problems http://www.bloomberg.com/news/2012-06-04/china-wall-hit-by-global-banks-with-2-market-share.html

DBS, OCBC and UOB shld juz not bother abt China.

OCBC: KPI for new CEO?

In Banks, Corporate governance on 15/05/2012 at 8:33 am

OCBC Bank was recently named as the world’s strongest bank for the second straight year by Bloomberg Markets Magazine. (The ranking featured 78 global banks with at least US$100 billion in total assets.They were assessed based on factors such as their Tier 1 capital ratio, loan-to-deposit ratio, ratio of non-performing assets to total assets and their efficiency ratio, which compares costs with revenues.)

OCBC said the bank’s strength is partly built on its “disciplined credit management practices and robust risk management capabilities”.

If I were the controlling shareholder of OCBC, I’d be very upset at this ranking because what it means is that OCBC is not making its assets work: it has too much capital. I’d tell the board that the most impt KPI should be that OCBC drops out of the top 10 on the list.

It can be done. UOB was at seventh place, down from sixth last year, while DBS fell three spots to eighth this year.

UOB and DBS are doing the right thing. Their core market (like that of OCBC) is S’pore and it’s a safe, boring, stable market where margins are only so-so. So not much capital is needed, if one sticks to the basics of banking, and not try to be a hedgie.

As to the right amount of capital, look at StanChart at no.12. It operates in a wide range of emerging markets, some in unstable parts of the world like West Africa and so needs to have capital lying around. If S’porean banks have abt the same level of capital, they should still be safe.

Analysing Temasek’s investment in another Chinese bank

In Banks, China, Financial competency, Temasek on 16/04/2012 at 7:06 pm

Temasek has agreed to buy Goldman Sachs’s shares in the Industrial and Commercial Bank of China (ICBC), the world’s largest bank. It will buy US$2.3bn worth of ICBC shares, taking its stake to 1.3% in the bank.

In an interview with Reuters at the end of March, Ho Ching’s presumed successor-in-training, Temasek’s head of portfolio management,acknowledged the heavy allocation to financials, but noted that it holds four very good banks: Bank of China, China Construction Bank, DBS Group and Standard Chartered. Well it has added ICBC to this list, and at a price close to the market price, unlike the stakes in the other two Chinese banks where it got a “special” price as a pre-IPO cornerstone investor.

But is it a wise move?

True, since the lows last October of the Chinese and HK stock markets, the shares of the four leading Chinese banks (including Bank of China, China Construction Bank and ICBC) have gone up by more than half, easily outperforming the broader market.

But since March, prices have been off (but masked by general market falls) because of concerns abt China’s growth, bad loans and comments by the  Chinese PM, Wen Jiabao, who hinted  of breaking the monopoly state-owned lenders have enjoyed in China’s banking sector. (The sector is dominated by four big state-owned banks and Temasek now has significant stakes in three of them.)

Mr Wen said that their monopoly was hurting businesses in the country, as they had few options to raise capital.

“Frankly, our banks make profits far too easily. Why? Because a small number of major banks occupy a monopoly position, meaning one can only go to them for loans and capital,” he was quoted as saying by China National Radio. “That’s why right now, as we’re dealing with the issue of getting private capital into the finance sector, essentially, that means we have to break up their monopoly.”

The lack of easy availability of capital has often been cited as threat to growth of small and medium-sized businesses in China. There have been fears that some of these businesses, seen as key to China’s growth, may turn to unofficial sectors for capital, increasing their borrowing costs substantially

But Temasek could be betting on, “Wen has one year left [in his term].” This was said by an unnamed Chinese state banker quoted by Reuters. “This is a task for the next generation of leaders. It cannot be accomplished within one year.”

But the banker could be wrong, Wen could be telling us what has been agreed upon between his generation and the next generation of leaders.

Remember, It took a beating on its finance industry holdings after the 2008 crisis, losing about $5 billion in stakes held in Barclays and Merrill Lynch, now part of Bank of America. It has since trimmed its financial holdings by 4 percentage points to 36 percent of the portfolio. Last month, it sold a 1.4 percent stake in India’s No.2 lender ICICI Bank. From said Reuters reported.

And of the remaining two “very good banks” where Temasek has significant stakes, DBS has juz decided to buy Temasek’s stake in Bank Danamon. Management will now be preoccupied with getting the deal approved by the Indonesian authorities, then integrating the bank into DBS. Before this deal, management had finally got to grips with DBS’s operational problems. The danger is that the focus on the Danamon deal may lead to backsliding in the area of operatons.

The genuine jewel is StanChart, but by global standards, it is “peanuts”.

Money for jam

In Uncategorized on 31/10/2011 at 6:10 am

I’m a shareholder in Lippo Malls Indonesia Retail Trust that has called for a massive rights issue (S$336.8m) that will not be underwritten by the five Joint Mgrs (StanChart, CIMB, Credit Suisse, BoA and UBS). Market is too volatile for them to risk their money for “peanuts”? In normal markets, they would be entitled to a fee of 2- 3% for underwriting the rights issue. This would have worked out to fees of between S$6.7m- S$10.1m.

But the five of them (StanChart, CIMB, Credit Suisse, BoA and UBS) are getting a total of S$1.5m (or 0.45% of amt to be raised) to do bugger all as I see it. This is 31.25% of the fees that will paid in relation to the rights issue. The rest of the fees will go to StanChart (financial adviser), lawyers, accountants, printers and so on.

Guess LMIR didn’t want to upset the investment banks who were planning to underwrite the issue.

Temasek’s StanChart bonds: No losers?

In Banks, Temasek on 24/10/2011 at 6:59 am

Despite the following and other rants, ‘Temasek’s S$650m issue of bonds exchangeable into StanChart shares was oversubscribed.”The order was $1.25 bn,” it was reported. I was not surprised.

Singapore Notes ranted, Stanchart shares are currently trading at £13.73 (yesterday’s quote); the highest level reached during last year was £19.75. The British £ has also taken a pounding, diving from S$2.90 to S$2 yesterday, a stomach churning plunge of 30%. Yahoo! Finance indicates today’s range will be £1.9907 – £1.9937.

So what fool (as in “fool me, hah?’) would bet that the Stanchart share price would go up 27% in 3 years’ time? That’s a tantalising return of 9% per annum, assuming the pound-euro correlation doesn’t get any worse. Reuters is reporting a sterling drop, as latest UK data adds to the gloomy outlook.

Juz look at the volatility of the share price. In the last 12 months, it has been up to £19.75. More than 27% from current prices. And in November 2008 it was trading around £8. Investors buying the bonds are betting that StanChart’s share price recovers within three years. Not an unreasonable bet, given the volatility of StanChart’s (and other banks’) share price in recent years. Interesting chart.

At worse, they lose their funding costs (if they borrow money to buy the bond) or opportunity costs (if they invest in cash or bonds) for three years. Their upside is 27%++.

To quote Reuters Breakviews, One part would be a zero-yield bond, with a face value of S$36. Assume lenders to triple-A rated Temasek normally demand a 1.8 per cent annual return, and the bond is worth around S$34.50 today.

The other part is a call option on Stanchart shares.

Plug the lender’s current price, its forecast 3.5 per cent dividend yield, and the implied volatility of Stanchart’s stock into an options calculator, and it looks to be worth S$4.50.

Put together, the two bits of paper have a total value of S$39 – some 8 per cent more than investors paid. Taz why the issue was oversubscribed.

Unlike me, the writer thinks it ain’t such a gd deal, But it’s probably not such a sweet deal. The value of the call option is inflated because Stanchart’s shares are twice as volatile as they were before the summer.

If the shares return to their steadier state, the option is worth closer to S$1, leaving the value of the whole package a little below the sticker price. I think volatility will persist.

‘The writer goes on to talk about the deal’s advantages for Temasek, For Temasek, there are obvious attractions. Even if all the bonds are exchanged for shares, it will retain a 17 per cent stake in Stanchart.

And if the shares don’t rise much, the fund will have borrowed S$650 million interest free.

But for all that, the savings are small. Say Temasek had simply borrowed directly from the bond markets. Over three years, its total interest bill would be less than S$40 million.

Moreover, the bond issue triggered a mini-rout in Stanchart shares, leaving Temasek with a paper loss on its remaining stake 10 times the size of the interest costs it saved.

Other than demonstrating its financial prowess, Temasek doesn’t have much to show for its wizardry. True but given the jitteriness of the markets, the shares would have fallen for other reasons. Banks are not the flavour of the month.

Temasek’s StanChart Bond Issue

In Banks, Temasek on 19/10/2011 at 2:45 pm

I’m surprised that a blogger whom I respect could get it so wrong with his analysis of Temasek’s stake in StanChart and the share price that investors can buy into StanChart via Temasek’s latest bond issue.

Singapore Notes reports, “The zero coupon bonds which mature in 2014 can be exchanged for Stanchart shares at £36.29 per share during a 3 year holding period, a 27% premium over Monday’s price of £14.29 on the London Stock Exchange.” A 27% premium to £14.29 works out to £18.15. not £36.29.

As to the value of Temasek’s stake in S$, he used as his starting point, “the purchase of a 11.5 % stake from Khoo Teck Puat’s estate in 2006. Then Stanchart shares were trading at £15.24, when the exchange rate was S$2.90 to £1.”

Since then there have been two massive and deeply discounted rights issues. The one in November 2008 was done at  £3.90, a 48.7% discount to the last done share price before the rights issue announcement. The rights ratio was 30 new shares for 91 existing shares. In October 2010, it called for a 1 for 8 rights issue priced at £12.80, a 32% discount to the last done share price before the rights issue announcement.

Standard Chartered beats forecasts with 17% profit rise

In Banks, India, Temasek on 04/08/2011 at 7:51 am

London-based, Asia-focused Standard Chartered Bank (Temasek owns 19%) has reported that pre-tax profits for the first six months of the year were $3.6bn (£2.2bn), up 17% from last year.

Profits grew in all the regions where Standard Chartered operates, except for its biggest market, India, where profits fell by 5%.

Profits grew by 23% in Hong Kong, 34% in Singapore, 14%in South Korea and 19% in China.Income from the Middle East grew 4%, in Africa it grew 10% and in the Americas and Europe it grew 11%.

It blamed rising interest rates, growing competition and regulatory changes for falling profits in India.  It made a big bet in India financing takeover details. Will be interesting to see if these give the bank the same death-defying experiences as it gave some Wall Strret banks in the 1980s and 1990s. http://atans1.wordpress.com/2010/09/10/stanchart-getting-too-aggressive/

Local bank investors are strange

In Banks on 12/05/2011 at 11:23 am

Yesterday the three local banks did well with investors demanding their shares.

In a Bloomberg survey on the world’s strongest banks, S’pore banks occupied three of the top 10 positions. OCBC was number one, DBS was 5th and UOB was 6th.

If I were a shareholder in one of these three banks, I’d be upset that the banks were such inefficient users of capital because the stronger the bank is, the less its earnings potential.

Standard Chartered was ranked 15th. It needs to have plenty of capital around because it does business in some really difficult markets like places like the Ivory Coast where its operations were closed for several months.

It also does some risky business like lending for M&A transactions in India.

Our three local banks operate in safe markets. OCBC and UOB are heavily dependent on S’pore and M’sia while DBS is dependent on S’pore and HK. Yes they also do business in riskier places like Indonesia (all three), mainland China (again all three) and India (DBS). But these places contribute “peanuts” to earnings and assets.

They are also conservative in the businesses that they do.

So they don’t need to be such inefficient users of capital. They can easy operate safely with capital ratios similar to that of Standard Chartered. Thois would increase earnings.

StanChart: Shares fall 6% in 2 days

In Banks, Emerging markets, Temasek on 13/12/2010 at 5:17 am

StanChart shares have fallen 6% since last Thursday when it told the market that costs were rising and wholesale banking revenues weak.

For StanChart, growth is proving costly. The British bank with a strong focus on Asian emerging markets said last Thursday that it had another record year to look forward to, predicting further growth in its pre-tax profit for both the consumer and banking wings of its business. However, such growth comes at a high price, and costs for the bank have been growing faster than it would ordinarily allow.

Its finance director said the bank would try to slow cost growth next year until it draws level with income growth once again.

Reminder: Temasek has 19% of StanChart and the bank is one of its best picks ever.

StanChart: Getting too aggressive?

In Banks, India, Temasek on 10/09/2010 at 5:11 am

Is Standard Charterd (which like HSBC) had a good crisis taking on too much risk? We shld care as Temasek owns 18% of StanChart, and StanChart  is one of its best performing investments.

Ranked 14th among merger advisers in India in 2009, StanChart is now number two (and could be soon Numo Uno) by financing takeovers in the world’s second-fastest growing major market for M&A deals, Bloomberg reports.

The problem is that in the 1980s and 1990s, major US investment banks  and European universal banks  got into serious trouble by financing takeovers in the US. The deals went sour when the economy collapsed. The banks had tot financing takeovers was a gd way (“no brainer”) of getting into the lucrative M&A game.  They forgot that these loans are margin financing by another name.

Is StanChart repeating the same mistake?  Maybe it thinks India’s economy may never collapse. But never take for granted anything about a country that needs “divine help” to get ready for the October Commonwealth Games.

Temasek: China banks’ loans

In Banks, China, Temasek on 31/07/2010 at 7:14 am

Chinese banks may struggle to recoup about 23%  of the Rmb7,700bn (US$1,100bn) they’ve lent to finance local government infrastructure projects . reports Bloomberg quoting “a person with knowledge of data collected by the nation’s regulator”.

The estimate implies US$261bn of debt will go bad, almost five times the US$53.5bn the nation’s five largest banks are raising to replenish capital. Remember Temasek owns 4% of Bank of China and 6% of China Construction Bank, both of which have raised more capital from shareholders.  And 18% -owned StanChart  invested $500 million in Agricultural Bank of China’s recent IPO.

If the estimate proves even a bit correct, Temasek will be having to invest more in the next few years  to avoid dilution.

Related post

http://atans1.wordpress.com/2010/02/08/tlcs-in-china-groupthink-or-mastermind-at-work/

StanChart: Who would have tot?

In Banks, Emerging markets, Temasek on 16/05/2010 at 6:21 am

Standard Chartered expects Indian profits to exceed HK for the first time next year, Richard Meddings, finance director, told the Financial Times. Hard to believe as HK is its core market.

But then StanChart executives, including Peter Sands, the group’s CEO, were in Mumbai to announce that the bank had obtained regulatory approval to become the first foreign company to list on an Indian stock exchange.

So a little cynicism is in order?

Seriously, Temasek with 19% of StanChart, must be commended for investing in a bank that now has as its two major markets, HK/China and India. Makes up for that FT dominated mongrel, DBS. Time to strip DBS to a local retail bank, and rename it POSB? Who needs one Asian champ and one Asian chump?

Update

When you think about it,  Temask’s banking strategy (Asian prong: stakes in two major Chinese banks, StanChart, and in Asian banks in Indonesia, M’sia, Pakistan etc) worked. Where it went wrong badly was in its Western investment banking  strategy buying into Merrill Lynch and Barclays and cutting its losses when the hedgies were buying.)

Moral of story, something Dr Goh could have warned them against: “Ang Moh tua kee” strategy does not work.

Temasek: Another banking success

In Banks, Emerging markets, Temasek on 06/05/2010 at 3:41 am

Temasek owns 19% of Standard Chartered. Standard Chartered has said that it made record profits and income in the first three months of 2010.The London-based bank, which operates mainly in Asia, said that it “remains in excellent shape”.

It  did not release profit figures for the quarter, but the remarks in its trading update point to a strong 2010. “Overall, the group has had a very strong start to the year, despite margin headwinds and increasing competitive pressures”.

In the first half of 2009, Standard’s profits were a record US$2.84bn (£1.86bn), suggesting profits for the first quarter of that year of about $1.4bn.

The  comment that it had “a record quarter in terms of both profit and income” for 2010 indicate it could beat these figures when it reports half-year results later in the year.

Wholesale banking, which includes advisory, trade finance and other investment banking business, saw client income rise by more than 20% on the first quarter of 2009 and contributed more than 80% of wholesale income, the bank said in its statement.

Wholesale banking has driven Standard Chartered’s growth in recent years and accounted for over 80% of group profit last year.

Just when you tot it was safe

In China, Economy, Emerging markets, India, Indonesia on 29/04/2010 at 5:18 am

Thinking of starting to  invest seriously in emerging markets? Standard Chartered warns of bubble in emerging markets. Extract from Guardian article:

Gerard Lyons, chief economist at Standard Chartered, said Asia was the main recipient of western capital, but there was also evidence of speculative activity in Latin America, Eastern Europe and Africa.

A combination of a prolonged period of low interest rates in the west and strong growth in emerging markets meant the money would continue to flow in. “The size of the flows could become more significant,” he added. “There is a significant risk, even though it is a consequence of economic success.”

The report noted that many countries did not have the capacity to absorb the capital inflows, with the result that the money boosted share and property prices, adding to inflationary pressures.

“The longer it takes to address this, the bigger the problem will be. Just as excess liquidity contributed to problems in the western developed economies ahead of the financial crisis, excess liquidity has the potential to cause fresh economic and financial problems across the emerging world.”

Massive flows of capital from emerging economies, especially those in Asia, helped to inflate the asset bubbles in the west that led to the financial crash of 2007. Standard Chartered said global liquidity flows had now reversed, with emerging economies now on the receiving end. Recipients included countries with current account surpluses such as China, and those running current account deficits such as Vietnam and India.

Lyons said China was the emerging economy investors were looking at for signs of trouble. “China is not a bubble economy but it is an economy with bubbles.” But he added that the problem was not confined to Asia, and that hedge funds were now looking at “frontier markets” in Africa.

While emerging markets needed foreign direct investment to help them grow, Standard Chartered said the influx of hot money was a big worry. “Although hot money is regarded as temporary, it persists until the incentive to speculate is eliminated.”

Oh and there is the Greek crisis. 2008, here we come again?

HKEx: Plan B when Shanghai overtakes it

In Uncategorized on 11/03/2010 at 5:48 am

Sounds (see below) bit like SGX’s strategy of playing second fiddle (although perish the tot of SGX admitting that it is  pursuing second tier status).

And it doesn’t need a Plan B, yet. Note that Prudential said that has made its application to the exchange for an introduction and said it would not offer any new ordinary shares. It had previous said it would apply for a dual listing after it stakeover of AIA. French cosmetics group L’Occitane is getting ready for an IPO in Hong Kong next month in a move that highlights rising consumer demand in Asia for luxury goods. It  could raise up to US$700m to bankroll its Asian expansion plans.And FT reports further, “A successful listing could re-ignite interest among other European luxury goods companies, including Prada and Ferragamo, which abandoned Hong Kong IPO plans ahead of the global downturn.”

Contrast this with SGX. It has now only started marketing to the Ruskies. Let’s hope some decent R-Chips come our way.Thinking of S-Chips: Sino-E and friends, I have my doubts.

From Reuters Breakingviews:

The Hong Kong Stock Exchange is the world’s second-biggest by market capitalization. Call it the China factor. Yet as the mainland’s own exchanges get bigger, Hong Kong can’t count on winning prize listings forever. It’s time for a Plan B.

Hong Kong has long been the destination for public offerings of China’s state-owned companies, because mainland rivals were deemed too small. But now, China wants to develop an international financial center on the mainland. Even Hong Kong stalwarts, like the lenders HSBC and Standard Chartered, plan to issue shares over the border. The next big bank to list, Agricultural Bank of China, may eschew Hong Kong altogether.

Hong Kong can’t get away from its Chinese roots. Efforts at diversification from Chinese public offerings have had little success. In 2009, mainland enterprises still accounted for more than 82 percent of all public offering money raised. The failure of the American International Group’s Asian life insurer, A.I.A., to go through with a planned listing may cut Hong Kong’s pipeline in half.

Charles Li, the exchange’s new chief executive — and a mainlander — says the exchange seeks to position itself against competition from London, New York and Shanghai by doing things that others can’t do. One way would be to focus less on initial public offerings and more on other businesses, like derivatives. As China’s own capital market deepens, the need for more sophisticated products will increase.

The real gold mine, though, could be for Hong Kong to focus on becoming China’s offshore renminbi capital. China is keen to push the renminbi internationalization agenda, but progress has been slow, mainly because of a lack of products for investment. Trading renminbi bonds offshore could be a good start. Stocks priced in renminbi could follow.

Hong Kong would need Beijing’s approval, and might have to accept a future without blockbuster public offerings. But better a partner than a rival.

ROB COX and WEI GU

Earlier posting on Shanghai’s ambitions http://atans1.wordpress.com/2010/03/01/spore-hk-have-competition/

Standard Chartered: more copycating of HSBC

In Temasek on 10/03/2010 at 5:57 am

Now that Standard Chartered has followed HSBC in saying that it wants to get a China listing–  just  after  its CEO  said it will donate his bonus to charity, ala HSBC’s CEO — maybe it will announce that it wants to buy a bank in China: what HSBC was reported as planning.

Some people are surprised that Temasek did not quash the bonus plan. You can only guess why they tot Temasek would be upset. But remember Temasek says it does not interfere with its investee cos’ commercial decisions.

Temasek: Lost its balls? Or wings clipped?

In Temasek on 06/03/2010 at 8:53 am

The three banks (Credit Suisse, HSBC and JPMorgan Cazenove) supporting Prudential’s $35.5bn bid for AIA  said on Thursday that the soveriegn wealth funds of Qatar (Qatar Holding LLC) and S’pore (GIC) have agreed to underwrite a significant portion of the US$20bn rights issue.

Bit surprised that given its record of big (and successful) bets on Asian banks (unlike on Western banks), Temasek isn’t an underwriter.  Or maybe, it had its wings clipped? Or lost its nerve? Only time will tell us why.

Reminder: The Pru needs to raise the cash from its shareholders to fund most of of the deal. The group will also issue to AIG US$5.5bn of stock, US$3bn of convertible notes and US$2bn of preferred shares.

BTW, among the 30 -odd bank underwriters, Standard Chartered and United Overseas Bank are co-lead managers, while DBS is a mere co-manager.

Where shld Standard Chartered base its CEO?

In China, India, Temasek on 04/03/2010 at 5:28 am

Last sat ST reported that analysts were saying  that Standard Chartered will be forced to relocate its CEO into Asia in imitation of HSBC.

If it does, it will be a test of Temasek protestations that it does not interfere with the commercial decisions of its investee companies. Remember it is the single largest shareholder in SC (195 ), and all the other big shareholders are “peanuts” as Mrs SM might put it.

The logical place for the CEO is to base himself in HK, SC’s biggest market and which is part of China: it and HSBC are targeting China as the biggest driver for growth.

But could Temasek or its shareholder resist the temptation to have  SC’s CEO here. Singapore is way behind HK in IPOs, hedge fund HQs (Soros prefers HK as his Asia HQ), fund mgt,   and in wealth mgt where S’pore wants to be a global player, the head so HSBC and JP Morgan’s private bank are basing themselves in HK, or thaz what reports are saying.

Already the private bank’s  and PE’s global HQs of SC are here, giving SC  the perfect excuse for relocating its CEO here.And S’pore’s nearer India, another big driver for SC’s future growth. As  to HK and China, he can fly there on SIA, not Cathay, of course.

And relocating here will give our MSM the excuse they need to exult the merits of this government before the expected early general elections.  Hard for the MSM to laud the government given the growing inability of ministers to avoid contradicting one another.

Note the news that SC’s CEO will also donate his bonus to charity, came only after it was reported that HSBC’s CEO would donate his. SC is always playing catch up to HSBC. At one time they were the same size, but one is a global player, the other is 19% owned by Temasek. But then OCBC was once on par with HSBC.

I’m a shareholder of HSBC for over 25 yrs.

BTW the relative sizes of both and how both had a gd crisis:

“The ranking three years ago and for most of the preceding few years saw HSBC as the biggest bank, Barclays and Royal Bank of Scotland chasing its tail, Lloyds some way behind that and Standard Chartered as the enthusiastic, fast-growing puppy.

‘Today HSBC isn’t just the biggest British bank. Its market value of more than £120bn is more than that of all the other four added together. It’s in a league of its own.”

“Today the market value of Standard Chartered, at an almost unbelievable £32bn, is only £2bn less than Lloyds’ and £5bn less than Barclays. And it is £11bn more than RBS (although that’s to ignore all the “B” shares that RBS has flogged to taxpayers).”

Excerpt from http://www.bbc.co.uk/blogs/thereporters/robertpeston/2010/03/the_new_banking_hierarchy.html

and if you want to read why HSBC and SC did so well a gd read.

Follow

Get every new post delivered to your Inbox.

Join 209 other followers