I’ve been examining the five listed FTSE-100 banks and taking at look at their capital positions, and comparing to what they were like when the credit crunch hit. This time I’m casting my eye over Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US).
Now, it’s arguable that Standard Chartered was never really overstretched, as it was largely unaffected by the property-lending crisis in the West. Standard Chartered conducts its business largely in Asia, with only 10% of its 2013 profits coming from Europe and the Americas — in fact, it’s the only one of the five that does not have a high-street retail presence in the UK.
Rising standards
By current standards, the bank’s capital ratios were actually pretty weak back in the days of the crisis, even if they easily satisfied the lax standards of the time.
Back in December 2007, Standard Chartered was able to boast a Core Tier 1 capital ratio of 6.6%, which easily satisfied the 2% requirements of the time, but would have fallen short of the 7% mandated by the Prudential Regulation Authority’s latest rules.
And that was calculated under the then-current Basel II rules, which set the basis on which various classes of capital were assessed — Core Tier 1 capital is supposed to be the best of the best a bank has, and provides the strongest security for its risky loans. Since then, those definitions have been under the screw, and the risk-weighting of assets has been tightened up too.
Getting stronger
Standard Chartered hasn’t actually had any problems satisfying the new rules, and a year later in December 2008 the bank’s Core Tier ratio was up a little, to 7.6%, and it has continued to strengthen. It reached 8.9% by 2009, and then 11.8% by 2010 — and it has stayed at 11.7-11.8% each year since.
And while other banks, notably the bailed-out duo of RBS and Lloyds, are really just getting back on their feet, Standard Chartered’s picture is one of ongoing growth — at 2013 results time, chairman Sir John Peace said “The Group has an excellent balance sheet, remains well capitalised and continues to support our clients as they seek to invest and expand across Asia, Africa and the Middle East“.
But if Standard Chartered is so risk-free, why has its share price slumped 30% over the past 12 months to 1,280p?
Risks ahead?
Well, with Chinese credit in a bit of a boom and the country’s property market overheating, many are fearing that Standard Chartered could face a crunch in its Asian markets — and if that happens, it will be a pretty good test of both the latest capital ratio requirements and of Standard Chartered’s own liquidity.