Last yr when Temasek gave a media presentation on its results, the question on StanChart elicited a BS reply but which when viewed today tells a lot about Temasek’s strategy in dealing with dogs with fleas: “Everything will be alright in the long term”. Err remember Keynes said in the long run, we are all dead.
QUESTION: Could you give us some comments on how do you see StanChart performing in your portfolio because over the last few years, especially in the last year and a half and looking at the outlook as well, they seem to be finding it quite challenging and there was a profit warning as well. What is your plan for StanChart? Do you think that… is that something that you would like to exit in the long term or you would treat StanChart as another Olam where you could actually try to take over?
RS: So look, it’s obviously not fair for us to comment on individual companies but all I would say is that yes, a lot of our stocks go through volatility. Standard Chartered is an emerging markets bank and like all emerging markets banks, the stock over the last year has been quite volatile. We, however, see ourselves as long term investors, short term volatility doesn’t concern us. We look at our investments over a longer term and use our value test to decide whether what we do with those stocks and we remain as an active investor always engaged with the companies.
The big concentration on financials is to play the rising Asian middle class theme. A lot of the exposure goes into China banks (not looking good going forward) and StanChart.
Err should have juz bot Apple leh? Look at its price since 2005 when Jobs returned https://sg.finance.yahoo.com/q/bc?s=AAPL&t=my&l=on&z=l&q=l&c= Ho Ching became CEO of Temasek in 2004, and Temasek started buying StanChart in 2006. She should have bot Apple.
Here’s why based on her thinking of riding the expansion of the Asian middle class (Not Italic bits below are my tots, snide comments).
What do two big American and European multinational corporations have in common? Not much on the surface when comparing consumer giant Apple to the FTSE-listed Standard Chartered bank.
However, both have been significantly affected by emerging markets in their first-quarter earnings. And how they’ve been affected is revealing of the way emerging economies have matured, particularly in Asia.
The emerging markets-focused bank, Standard Chartered, reported a big fall in pre-tax profits of more than one-fifth in the first quarter (22% to $1.47bn) as revenues fell by 4% and costs rose by 1%.
By contrast, Apple had a strong quarter where revenues rose by 27% to $58bn, driven by a 40% increase in sales of iPhones. More than 61 million were sold globally, and notably, the biggest market was China for the first time and no longer the US. [Demand from China’s middle classes, iPhone sales leapt 40% to 61.2m units.]
But iPad sales fell sharply by 29%, reflecting a weak spot in their figures. [Apple fixing this introducing new model for Jap aging market. If works in Jap, another big global winner.]
So, it’s a really tale of two emerging markets. [Ho, Ho, Ho]
One side of emerging economies is a concern over their slowdown in growth, which raises risks over loan repayments, not just in Asia but also commodity exporters in Africa and the Middle East.
These are Standard Chartered’s key markets. Indeed, Standard Chartered took a $476m charge on bad loans, which is 80% higher than the first quarter of last year, although loan impairments were lower than in the previous six months.
[Ho, Ho, Ho]
However, there’s also the consumer side of emerging markets to consider.
For Apple, China’s rapidly growing middle class generated an impressive 72% increase in sales of iPhones. And Greater China has even overtaken Europe to become Apple’s second largest market for the first time with revenues rising by 71% in that region to $16.8bn, which accounts for much of Apple’s strong performance. Net profit was a third higher at $13.6bn for the quarter.
So, as emerging markets, particularly in Asia, become middle income countries, companies that sell to those emerging consumers are well-positioned to benefit.
But the period of rapid economic growth, particularly via debt-heavy investment, of key emerging markets is seemingly over. And companies, particularly banks, are liable to struggle as those economies restructure toward being increasingly driven by consumption.
[Ho Ho Ho: so waz Temasek doing to get into the consumption plays? Olam? Asians eating more peanuts?]
My serious point that by focusing so much on financial services (30% of portfolio and not on consumer plays (outside of the Telecoms, Media & Technology sector: 24%), Temasek has for the last few years been betting on a three-legged horse. Other consumer plays are only a subset of Life Sciences, Consumer & Real Estate: 14%)
The Hong Kong Monetary Authority says that it “takes a positive attitude should HSBC consider relocating its headquarters back to Hong Kong”, where it is the largest bank.
HSBC WEIGHS MOVE FROM LONDON HSBC was established in Hong Kong 150 years ago and moved its headquarters to London in 1993. Now it is considering a return trip. Citing changes in regulation, HSBC says it will study whether to relocate its headquarters out of London, reports Chad Bray in DealBook.
A big part of the issue is Britain’s bank levy, which was instituted in 2010 to help pay for the government’s financial crisis bailouts. While all banks operating in Britain pay the tax, Mr. Bray writes that “The levy hits British-based banks particularly hard, however, as they are taxed on their global balance sheets.” HSBC’s announcement could become a political issue as Britain nears a general election on May 7.
Hongkong Bank is a HK quitter. It moved to UK in 1993, juz before PRC regained HK in 1997. But all is forgiven.
Both HK have S’pore have similar sized economies (about US$300bn in GDP).
HK is willing to be lender-of-last-resort to HSBC a bank with US$2,6 trillion in assets, despite HSBC being almost 9 times bigger than HK’s GDP.
Yet the S’pore authorities, it’s clear from hints in the FT, are unwilling to have StanChart HQed here (only 1.1 trillion in assets), despite Temasek being the largest single shareholder (which will benefit from reduced tax: HSBC shares were up 6% in HK yesterday), and despite many of StanChart’s operations being run from here.
The PAP administration is afraid of another of Temasek’s investments blowing up? After all StanChart is not as safe as our local banks: https://atans1.wordpress.com/2015/03/25/stanchart-not-as-solid-as-local-banks/
It also has weaker capital ratios than HSBC and the big US banks. So weak that the new CEO is expected to call for yet another massive rights issue.
Remember LKY and his bank investments that are forever? OK 30 yrs leh) Even longer than Buffett’s investments, he once said
In 2007/2008, our SWFs’ bot into UBS (GIC), Citi (GIC) and Merrill Lynch (Temasek) in a big way that ST characterised then as showing S’pore was a tua kee investor.
We lost serious money in two of the 30-yr investments by 2009.
— Estimate of Temasek’s realised losses on ML and Barclays:
As readers will know Ho Ching has big markers on StanChart and Chinese banks.
Once regarded as a proxy for the growth of Asian markets in commodity-rich nations like Indonesia, StanChart has today become a victim of the reversal of fortune suffered by many emerging markets and their heavily indebted corporate borrowers …
Much of the lending to Asia outside of China assumed the region would grow on the back of insatiable demand from China. Much of the lending to China itself was based on that same expectation. That faulty thinking was then compounded by assuming that the value of the Chinese property used to back the loans would also continue to rise. But local banks in China, such as Agricultural Bank of China, are beginning to report that their bad loans have doubled — although officially they remain under 3 per cent. (Excerpt from recent FT article)
Ho Ho HO.
But it’s our problem too now that Tharman is now using projected long term returns from Temasek to spend our money on ourselves. Cybernuts might want to note that their heloo, Ong Teng Cheong, wanted to lock-up all the returns from the reserves (more LKY and Dr Goh). It was Ah Loong that fought him. Ah loong is the real people’s hero. if Ong had his way, we’d be pressing our noses on the iron bars guarding our reserves: Money, money everywhere/ Not a cent to spend/ Give thanks to Ong Teng Cheong
But the pix’s not that great for our local banks either: what with DBS’s exposure to Greater China and Indonesia, OCBC’s exposure to Greater China, and UOB’s and OCBC’s exposure to M’sia. Btw, OCBC has FTs as its Chairman and CEO, while DBS and UOB have true blue S’porans (Yes, I’m counting Gupta as a local. He’s a real talent.)
Following the coming change in CEOs, the resignation of a very senior manager and a planned change of chairman, Viswanathan Shankar (new citizen and a real talent like DBS’s Gupta), head of the bank’s Europe, Middle East, Africa and Americas business, is said to be planning to start a private equity fund. The bank it seems wanted to give him additional responsibilities. This not not good as the deputy CEO (passed over for the job) is also expected to leave.
Temasek and other major shareholders wanted change. May be they’ll end up with serious instability.
Singapore requires its banks (OCBC, UOB, BDS) to hold significantly more capital than the global minimums. For Singaporean banks, the average core tier one ratio — the main measure of bank safety — currently stands at 14%.
StanChart has a core tier one capital ratio of 10.7% and has set a goal of 11 to 12% this year.
The higher its capital ratio, the harder it is to make money. Taz why pre-crisis Temasek and GIC were big into banks that had juz adequate capital: think Citi, Merrill Lynch, UBS and StanChart.
But this lack of Asian experience shows that the directors think that the main priorities for the bank are to shore up capital (rights issue coming) and mending ties with US regulators. He has great credentials for these tasks. Temasek seems to agree. it welcomed Mr. Winters, who “brings with him considerable experience, as well as an excellent reputation for building good teams.”
(*Btw, “inspired choice” is FT’s description)
Still the lack of Asian experience could become a major issue because there is expected to be an exodus of experienced managers. He may find replacements but changes will be disruptive if not problematic.
STANDARD CHARTERED OVERHAULS LEADERSHIP The British bank Standard Chartered responded on Thursday to shareholders’ calls for change, announcing a sweeping management overhaul including the departure of its chief executive, its chairman, the head of Asian markets and several directors, Jenny Anderson and Chad Bray write in DealBook. In a move that surprised many, it named William T. Winters, the 53-year-old former head of JPMorgan Chase’s investment bank ‒ who was once seen as a candidate to succeed Jamie Dimon ‒ to take the helm.
Mr. Winters, who will join the bank on May 1 and become chief executive in June, will succeed Peter Sands, one of the longest-serving chief executives in British finance. He will receive a base salary of 1.15 million pounds, or about $1.8 million, as well as a pension and other benefits. As the bank’s leader, Mr. Winters will not have it easy. The bank has been hurt in recent years by regulatory fines and investigations and by its focus on emerging markets. It has slashed thousands of jobs, closed its stock trading and underwriting unit and is looking to cut $400 million in costs. Impairments for bad loans, including in the mining sector, have soared.
But Mr. Winters, an American, appears up to the task. In a call with reporters, John W. Peace, the chairman, said that Mr. Winters had “great respect among regulators, clients and the market” and a solid understanding of the global regulatory environment. Temasek Holdings, which owns almost 18 percent of Standard Chartered, declined to comment on whether it had pressed for management changes. But it said that it welcomed Mr. Winters, who “brings with him considerable experience, as well as an excellent reputation for building good teams.”
Related article: http://blogs.reuters.com/breakingviews/2015/02/26/stanchart-board-clearout-is-only-the-first-step/
The second biggest shareholder in Standard Chartered (after Temasek with around 27%) is standing by the embattled Asia-focused bank, continuing to buy the stock and insisting that nothing is “fundamentally wrong” with the company.
Martin Gilbert, chief executive of Aberdeen Asset Management PLC, said that funds run by his company have been “buyers of the stock in a fairly modest way,” despite a series of profit warnings that have sent Standard Chartered’s share price down 33% this year.
“We do not think there is anything fundamentally wrong with the bank,” said Mr. Gilbert, during a call to discuss Aberdeen’s results. He said that revenue growth had slowed but added that he would prefer the bank’s existing management team, headed by chief executive Peter Sands, to “sort it out” rather than looking for a replacement: “They have to really get on with it, I would say, and have a look at the costs.”
Aberdeen owns 7% of the bank, according to Factset, and, as of Oct. 31 2014, that had not changed since last year. Some Aberdeen funds have “topped up” their positions this month however, according to an Aberdeen spokesman.
The value of Standard Chartered shares held by the emerging markets-focused fund manager slid from a peak of $5.1 billion in February last year to $2.6 billion in October, according to Factset data. Part of that was due to an 8% reduction in the size of Aberdeen’s stake at the end of last year, but most was due to the bank’s falling share price.
It has some big exposures to heavily indebted clients, such as India’s Ruia brothers, who control the Essar Group, and Indonesian billionaire Samin Tan.
But the facts won’t stop Philip Ang, TOC’s and TRE’s star analyst, from cursing and ranting: he’s so bad that in a piece on a GIC, London investment, he left out the rental yields out of his calculation because he said that the income was “peanuts” (my word, not his). Well commercial property yields are a gd 6%, and have been as high as 8% in some yrs recently.
Top bosses at Standard Chartered admitted the bank’s performance had been disappointing as they announced plans to close 100 branches in a $400m (£250m) cost-cutting drive to win back support from disgruntled investors.
The admission was made as the bank’s top management team began three days of presentations to investors, who have endured a 30% drop in share values. There are also concerns about whether the bank has enough capital.
At the start of the three-day presentation, the new finance director, Andy Halford, said: “We recognise our recent performance has been disappointing and are determined to get back on to a trajectory of sustainable, profitable growth, delivering returns above our cost of capital.”
The chairman of StanChart said to 300 of the bank’s senior managers in Singapore last week, “We’re making changes. But all you have to do is go out in the field, go out into our markets, and you very quickly realise that it’s not broken. It just needs to go in for its 10-year service and we are in there for that 10-year service now … it’s a question of going through this difficult period, gritting our teeth”.
He said: “Humility is a very important word. It’s very important that we recognise we make mistakes”.
(And Chairman Sir John Peace was in Singapore last week insisting the bank is not ‘broken’. Three profit warnings say otherwise http://www.theguardian.com/business/2014/nov/09/standard-chartereds-charm-offensive-may-not-save-sands)
Well the PAP has been making changes, gritting fangs and sheathing claws since 20111: spending more of our money to make life more comfortable for ourselves.
But it doesn’t ever do humility (OK PM did apologise once during a 2011 GE rally speech, but hey he had an election to win). It won’t even admit that the PAP’s Hard Truths need servicing every now and then. It’s all a question of new blood to uphold Hard Truths.
Taz the impression I get after this
— “Today is the time to re-dedicate ourselves to the party and to Singapore. In the next 60 years, the path ahead will be different.”
— “One thing has not and will not change, that is the need for good leadership. The PAP commits to provide the leadership and serve Singaporeans better…The PAP will always be on Singapore and Singaporeans’ side.”
— “The PAP will always do its best for Singapore and Singaporeans.”
PM made these statement at the Victoria Concert Hall on 7 Nov in celebration of PAP’s 60th anniversary.Victoria Concert Hall was the venue because this was where the PAP launched way back in 21 November 1954, with its inaugural political meeting held there.
So because the PAP is not prepared to service its Hard Truths to see if they need throwing out, we are stuck with
The Hard Truth behind the other difficulties S’poreans face listed above is that govt should not spend tax-payers money on “welfare”, only on toys for the military and govt running expenses (which includes ministers’ and civil servants salaries).
Standard Chartered Plc (STAN) fell for a fourth consecutive day in London after U.S. prosecutors reopened investigations to determine whether the bank, which entered into a deferred prosecution agreement in 2012, withheld evidence of Iran sanctions violations.
The U.S. Justice Department, Manhattan District Attorney Cyrus Vance Jr. and Benjamin Lawsky, superintendent of New York’s Department of Financial Services, are all reopening their original inquiries into the London-based lender to determine whether it intentionally withheld information from regulators before the 2012 settlements, according to two people briefed on the matter, who asked not to be identified because the probes are confidential.
One problem after another. Can’t do anything right. Please American regulators, upset an Arab one.
Standard Chartered Could Face U.A.E. Legal Action Standard Chartered’s unit in the United Arab Emirates may face legal challenges after the British bank agreed to close some accounts as part of a deal with New York State’s banking regulator. Standard Chartered agreed on Tuesday to pay a $300 million fine for running afoul of a 2012 settlement to resolve accusations that the bank processed transactions for Iran and other countries blacklisted by the United States.
Star British fund manager Neil Woodford sold his fund’s stake in HSBC (HSBA.L) last month, citing concerns about the impact of potential fines from several industry-wide investigations on the banking group.
Banks in Europe and the United States have been fined for a variety of transgressions as regulators increase their scrutiny of financial institutions
“I am worried that the ongoing investigation into the historic manipulation of Libor and foreign exchange markets could expose HSBC to significant financial penalties,” Woodford said in a blog posting on his fund’s website.
“Not only are these potentially serious offences in the eyes of the regulator, but HSBC is very able to pay a substantial fine,”
For Woodford, who began building a stake in the UK’s biggest lender in 2013 after avoiding the sector since 2002, HSBC was “a different beast” to its peers, many of which still had problems over the quality of their loan books, capital adequacy and high leverage ratios.
In spite of the fact he considered HSBC a “conservatively-managed, well-capitalised business with a good spread of international assets”, Woodford said he had become concerned in recent weeks about the threat of “fine inflation”.
From the $1.9 billion paid by HSBC in 2012 over money laundering to the $16.7 billion set to be paid by Bank of America over its role in selling toxic mortgages, fines were increasing, Woodford said, and looked to be based on a company’s ability to pay “rather than the scale of the transgression”.
With the size of any potential fine “unquantifiable”, Woodford said he was concerned about HSBC’s dividend payouts. The stock currently yields 4.8 percent, against a FTSE100 average of 3.8 percent.
“A substantial fine could hamper HSBC’s ability to grow its dividend, in my view. I have therefore sold the fund’s position in HSBC, reinvesting the proceeds into parts of the portfolio in which I have greater conviction,” he said. Reuters
For the record, HSBC is trading at 1.1x book, its European peers are at 0.9, while StanChart is at 1.03. Our banks are at 1.3.
Carson Block Is Shorting Debt of Standard Chartered
Carson Block, the short-seller who runs Muddy Waters LLC, said he’s betting against the debt of Standard Chartered Plc (STAN) (STAN) because of “deteriorating” loan quality, triggering a 13.5 percent jump in the cost of insuring against losses on the debt of the British lender.
Somehow I don’t expect StanChart to go berserk like Olam, “Carson Block is outside of the bank and does not have access to the bank’s loan files,” said Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd. “He has very little ammunition in his gun to shoot at Standard Chartered at this point. He’s got one example of a large loan that appears to be something that possibly would not have been prudent to book.”
Both were narco banks. They were founded in the 19th century to finance the trade in opium between British India and Manchu China. They moved on with HSBC becoming one of the biggest banks in the world while StanChart remained like HSBC, once was, a an emerging markets bank. But HSBC returned to its roots: HSBC was fined for providing help to the Mexican drug cartels (bank counters were made bigger to facilitate the handing over of bank notes). StanChart was fined for a technical offence.
Standard Chartered posted a slight increase in annual net profit in 2012. Its businesses in emerging economies offset a US$667 million fine in the United States connected to illegal money transfers.net income rose less than 1, to US$4.8 billion, compared with 2011, while revenue rose 8%, to US$19.1 billion. It was the 10th consecutive year that Standard Chartered had reported a yearly increase in its profit. Its vast operations across Asia, Africa and the Middle East helped protect the bank from many of the problems affecting developed economies like the United States and Europe … Standard Chartered has continued to expand in emerging markets by taking advantage of growing demand for financial services from both local companies and international entities looking to invest.
The bank said its operating income in China grew 21 percent last year, to $1 billion, as it benefited from expanding its local branch network sixfold since 2003. Standard Charted said it was now active in 25 emerging economies where its annual growth was in double digits.
“Analysts at Barclays recently highlighted concern over StanChart’s bad debt trends, evident in a 42 per cent increase in loan impairments in the first half of the year, compared with pre-tax profit growth of only 9 per cent,” reports FT. The growth is fastest since 2002.
So as StanChart still trades at a 25% to HSBC (1.5x book value versus 1.2X), this may account for the stories that Temasek wants out of its stake.
The British bank where Temasek has a controlling stake of 19%, which agreed in August to pay the New York state’s top banking regulator US$340 million to settle money-laundering allegations (and in the process making a PAP apologist look even more stupid: he attacked the NY regulator as a “rogue prosecutor”), may be at risk of losing money on a US$1 billion loan to an Indonesian tycoon to buy shares in an Indon mining company*controlled by the family of an indon presidential candidate. He bought the shares at abt 11 sterling last yr. Now under 150 pence.
The CEO of StanChart’s SE Asian operations said recently that Standard Chartered had no plans to spend the proceeds of a £3.3bn (US$5.3bn) rights issue on a significant acquisition in Asia. The bank planned to expand in the region largely through organic growth, rather than acquisitions.
The bank was not looking for any “transformational transactions” in SE Asia, although it might seek to acquire small businesses specialising in sectors or products that would add to its operations.
This would rule out a bid for DBS. Many had speculated (self included) that the bank might be preparing to spend part of the rights issue proceeds on a large acquisition. A very few (self included) speculated that DBS was a target, given that DBS is so badly managed and Temasek is a controlling shareholder in both.
DBS reminds me of StanChart in the 70s and 80s, when the latter got almost everything wrong. Only in the 90s did it get its act together. For younger readers, in the 60s Hongkong Bank and StanChart were roughly the same size, even though the former was already the leading bank in HK.
Standard Chartered bought two smallish S’pore-based businesses
— an aircraft leasing business in 2008; and
— a small factoring business earlier this year.
In 2008, it bot the private banking business of American Express in £430m.
No not Temasek as predator. Remember it has 18% of StanChart.
But what abt JP Morgan? Top FT reporter Francesco Guerrera analyses
The international conundrum is more complex. JPMorgan earns some 75 per cent of its revenues in the US, a slow-growing, developed country. By contrast, Citi derives some 40 per cent of its revenues from Latin America and Asia, emerging economies with a bright future that are also HSBC’s stomping ground.
Those lenders’ competitive advantage is their ability to offer boring-but-lucrative commercial banking and cash management services to thousands of companies.
JPMorgan has a deep commercial banking network in the US – its most profitable business – but lags overseas.
The bank already works with more than 2,000 foreign companies but Mr Dimon would love to get that number to nearer 4,000 and do more with each of them.
To this end, JPMorgan is adding 250 bankers and $50bn in extra lending to lure foreign companies. But that could take decades and the bank might want to shorten the wait with bolt-on acquisitions (as its investment bank did with Britain’s Cazenove and RBS Sempra).
The recent moves by Heidi Miller, a veteran executive, to lead the international effort, and Doug Braunstein, a takeover specialist, to the role of finance chief, certainly point in that direction.
But, as my GPS intones when I get lost, “there is a better way” – in theory at least – and it leads to Standard Chartered.
A well-run, commercial and retail bank with strongholds in Asia, Latin America and Africa, StanChart could be the answer to Mr Dimon’s problems.
It would not come cheap – its valuation is well above JPMorgan’s – and a bid by Mr Dimon would trigger a war with HSBC and China’s ICBC, among others.
But JPMorgan’s good health affords its chief the luxury of time.
Looks like trouble for the Chinese property developers and banks may be coming sooner than later, and for China bank bull Temasek. A repeat of Merrill Lynch and Barclays?
Remember Temasek owns 4% of Bank of China; and 6% of China Construction Bank. And StanChart is a cornerstone investor in Agricultural Bank of China with abt 1% paying US$500m for this privilege). Temasek owns 18% of StanChart.
And what about CapLand and KepLand, with their biggish exposure to Chinese residential properties?
Might sound dumb to ask given that the Chinese banks that Temasek invests in are some of the largest in the world, and given that China’s economy is growing like the bean stalk in the story Jack and the Bean Stalk. But then Shin, Merrill Lynch and ABC Learning were “no brainers”.
State agency Central Huijin Investments did something strange recently. It has controlling stakes in nearly all of China’s largest banks, including China Construction Bank (6% owned by Temasek), Agricultural Bank of China (StanChart is a cornerstone investor with abt 1% paying US$500m for this privilege) and Bank of China (4% by Temasek) . Temasek owns 18% of StanChart.
Huijin just raised Rmb40bn (US$5.9bn) as part of a Rmb187.5bn fund raisng. The aim of raising the Rmb187.5bn is to recapitalise Chinese banks it controlled.
Sounds prudent given the explosive loan growth rates of the banks brought about by Chinese attempts to stimulate the economy.
But this is the weird bit: the state-controlled banks were estimated to have bought more than 80% of Huijin’s first bond issue, on orders from their shareholder. If this is repeated, this means the Chinese banks are lending money to their controlling shareholder so that the shareholder can buy shares in them. No new cash is invested by the controlling shareholder.
Sounds something that only Wall Street cowboys would dream of doing.
Except that the Wall Street cowboys would be in jail for pulling off this stunt, unless of course, if a Texan is president.
Standard Chartered moved V. Shankar from S’pore to Dubai, a few months ago, to head the bank’s Gulf base in the Dubai International Financial Centre. He is chief executive responsible for Europe, the Middle East, Africa and the Americas.
He is a S’porean, home-grown talent, I’ve been assured by people from Stan Chart.