Ben Chu: Standard Chartered shareholders, beware - the East is no one-way bet
Outlook Standard Chartered is a strong bank because it is well capitalised and generates most of its revenues in fast-growing Asian markets. That's what we're constantly told. But yesterday's half-yearly update should perhaps prompt us to look more closely at some of that conventional wisdom.
The London-listed bank yesterday announced a chunky $1bn (£650m) writedown on the value of a South Korean lender it acquired in 2005 – a reminder that not every Far East deal turns out a winner. That writedown depressed profits for the six months to $3.3bn, 16 per cent lower than the same period last year.
Investors should bear in mind that Standard Chartered has an equity cushion of $45bn funding $650bn of assets. So if those assets were to slide in value by just 7 per cent, the institution would in effect be bust. Such a slump is unlikely but not impossible given growing fears of a financial crisis in China – something that would surely have profoundly negative implications for a region where Standard Chartered does so much of its business.
Compared with UK peers such as Barclays and Royal Bank of Scotland, Standard Chartered is indeed a well-capitalised bank. But that doesn't mean it couldn't do with an even bigger equity cushion to cope with the economic monsoon that could be building in the east.
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