The roots of Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) go back to the mid-nineteenth century, via the Chartered Bank of India, Australia and China (founded by Royal Charter in 1853) and the Standard Bank of British South Africa (founded 1862).
The history remains clearly visible in the geography of Standard Chartered’s profits today. The Asia-Pacific and India regions are responsible for three-quarters of group profit, Africa and the Middle East for a little over a fifth, and the Americas/UK for just one twentieth.
In terms of business segments, a quarter of Standard Chartered’s profit comes from consumer banking, while three-quarters comes from wholesale banking. Corporate clients appreciate the local knowledge and expertise Standard Chartered has accumulated through 150 years of doing business in Asia and Africa.
The bank’s geographical positioning insulated it from the financial crisis of 2008/9 — but that’s not to say Standard Chartered isn’t very well run. It is.
One financial measure that shows Standard Chartered’s efficiency — and which has me excited as an investor — is the cost-to-income ratio. This ratio reveals how much the bank is spending on staffing, property and all the other costs required to run the business, compared with the revenue produced.
Standard Chartered’s cost-to-income ratio is 0.5. Put another way, the bank is spending 50p for every £1 of revenue it generates. HSBC, Barclays, Lloyds and Royal Bank of Scotland are all spending more to earn their £1s. In addition to Standard Chartered’s superior efficiency, I like the fact it has fewer bad-loan and bad-practice legacies than its rivals. In a nutshell, Standard Chartered looks a very solid bank to me.
However, investors have become concerned about slower growth within emerging markets this year. Companies with significant exposure to these economies, such as consumer goods giant Unilever, have seen weakness in their shares. Standard Chartered’s shares have declined by 6% over the last six months, and are more than 20% down on their year high of February.
This looks an opportunity, if you believe in the story of long-term growth in Asia and Africa. At a recent price of 1,450p, Standard Chartered is trading on less than 11 times this year’s forecast earnings — cheaper than its sector peers and much cheaper than the average FTSE 100 company.