View from City Road: An expensive Standard

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The Independent Online
STANDARD Chartered has one thing in common with Barclays, which is the way reprisals for bad debts stop well short of the boardroom. But in most other respects the results yesterday were in a different category, as investors demonstrated when they bid the shares up sharply.

Standard's losses in India were a sign of poor control systems that failed to pick up a localised (but very expensive) problem, and not of a group riddled with bad lending. It was a lot easier for the market to believe Standard had put things right.

The underlying results were better than expected, largely because of the Asia Pacific region, where trading profit more than doubled to pounds 382m, helped by successful litigation in the US and Australia, most of which went into a pounds 67m credit in the bad debt account. Standard is riding a regional boom from its strong base in Hong Kong.

The boom will go bust, but there is reassurance in that the bank is already trying to move to a defensive position in Asia, by shortening the maturity of its lending book and emphasising short-term trade finance.

There was very little else to boast about last year, with the UK losing money largely because existing corporate problem debts got worse and Chartered Trust cost it another pounds 35m. The maintained dividend has been paid out of exceptional property profits, rather than the reserves, while the capital ratios look low by current standards.

Tier 1 capital (mainly equity) is above the regulators' minimum of 4 per cent but just below the 5 per cent benchmark set by the markets for top-rated stocks. There is pounds 400m of surplus Tier 2 (or bond) capital, which under Bank of England rules cannot be used until more equity is raised, but which would magnify the impact of a rights issue on overall capital.

The argument against a rights is that Standard has shareholder approval for a dollars 300m ( pounds 213m) issue of preference shares in the US, which would count as Tier 1 anyway. The dollar market does not want bank prefs now, but Standard will wait until it does.

With brokers' 1993 profit forecasts raised yesterday to the pounds 360m- pounds 400m range, the shares rose 25p to 716p. But with a 300p gain since September, only a gamble on bid prospects justifies buying at this price.