atans1

HoHoHo: Two brokers’ views on StanChart

In China, Emerging markets, Temasek on 10/09/2015 at 12:48 pm

From today’s FT (apologies for lifting)

With StanChart shares down 40 per cent in a year, investors are pricing in a replay of the Asian financial crisis, said Sanford Bernstein. That looks too pessimistic, the broker said, arguing that, whereas the 1997 crisis arrived suddenly, StanChart has had three years’ warning to shrink its current loan book and protect capital.

A FTSE 100 rebound helped lift Standard Chartered away from its six-year low on Wednesday.

With StanChart shares down 40 per cent in a year, investors are pricing in a replay of the Asian financial crisis, said Sanford Bernstein. That looks too pessimistic, the broker said, arguing that, whereas the 1997 crisis arrived suddenly, StanChart has had three years’ warning to shrink its current loan book and protect capital.

“The faster you drive into a crisis, the more you will get hit,” Bernstein said. “The speed at which the bank is hitting turbulence is dramatically different between the last crisis and this one.”

Bernstein added that, while StanChart does not need to raise cash, new chief executive Bill Winters may want to top up capital buffers by $3bn-$4bn “to give it significant leverage when the cycle turns next year”.

StanChart rose 3.2 per cent to 744p as the wider market extended its rally into a third day.

Monday’s FT (Again apologies for lifting. Promise no more after this)

shares hit a six-year low on Monday as worries grew over the depth of restructuring required under new chief executive Bill Winters.

The Asia-focused lender slid 1.7 per cent to 701.4p on reports it may cut a quarter of senior banking roles as part of a new business plan expected within the next few months.

Funding a deep restructuring would put further pressure on StanChart’s cash flow and capital ratios, which already include $49bn of commodities exposure and a further $43bn of risky Chinese and Indian debt, said analysts.

StanChart might need to raise as much as $5bn to cover bad loans, in addition to between $3bn and $4bn to boost its capital buffer to peer levels, forecast Morgan Stanley.

While the broker did not assume StanChart will need to launch a cash call, it put a one-in-five chance on China causing an Asian slowdown economic equivalent to the 1997 crisis, under which it said the shares would be worth 410p.

 

 

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