Standard Chartered raises $1.6 billion on back of strong results

The unexpected placement does little to dampen analyst enthusiasm for the Asia-focused, UK-based bank.

Standard Chartered raised $1.6 billion (£1 billion) with a placement late on Tuesday night, just after announcing another strong set of earnings. This is the first time that the UK-based bank has tapped the markets for capital ever since its $2.6 billion rights issue in December. And although the deal came as something of a surprise, analysts still think that Standard Chartered remains the bank to watch.

The deal consisted of 75 million shares priced at £13.60 each, a 5.2% discount to the last trading price on Monday. The shares sold represent 3.9% of the issued ordinary share capital of the company prior to the placement. The shares were placed with independent institutional investors with no connection to Standard Chartered or its subsidiaries.

The bank's London listed shares were down by 7.5% on Tuesday to £13.28, and the Hong Kong shares were down 1.87% at yesterday's close. The London shares bounced back 3.16% when trading finished yesterday.

After the placement, the bank's core tier-1 ratio increased to 8.4%. Some analysts believe that the 7.4% ratio before the deal was a little low for a financial firm with an international network - HSBC, for example, had a ratio of 8.8% in the first half of the year.

There could be another reason for the timing of the placement; the deal occurred on the same day that the Australia and New Zealand Banking Group (ANZ) announced that it would acquire some of the Royal Bank of Scotland's (RBS) Asian assets. ANZ will pay $550 million for businesses in Hong Kong, Indonesia, the Philippines, Singapore, Taiwan and Vietnam.

This is significant because Standard Chartered is the hot favourite to pick up RBS's remaining Asian assets; specifically its Chinese, Indian and Malaysian businesses. The capital raising could be a sign that Standard Chartered may soon make a move for these assets.

That the bank intends to strengthen its position in Asia, Africa and the Middle East -- markets that account for 90% of its profits -- was made clear by chief executive Peter Sands in documentation related to the placement: "The quality of Standard Chartered's franchise and its financial strength means we have the opportunity to build a clear strategic advantage over our competitors in our core markets. The proceeds from the placing will put us in an even stronger position to do this and drive returns for our shareholders."

The evidence for this financial strength comes from the bank's results for the first half of 2009, which came out on Tuesday. Net profit after tax was up 24% half-on-half and 5% year-on-year to $1.88 billion. Its businesses in Hong Kong, Singapore and India were strong performers.

Analysts think that the strong results will help perpetuate the rise in Standard Chartered's share price, which is already up 55% year-to-date in London and 94% in Hong Kong. In response to the earnings, analysts yesterday increased their target prices. Merrill Lynch's new target price is between £13.49 and £14.87, compared to yesterday's close of £13.70. Goldman Sachs and Macquarie have new targets of HK$182.20 and HK$195 respectively compared to yesterday's close of HK$178.90.

Merrill, meantime, maintains a positive stance on the bank for four main reasons: its "unrivalled leverage" in the world's fastest growing banking markets; its healthy outlook for future earnings; its management team; and the potential for a re-rating once its consumer banking business is turned around.

According to Goldman, there are some weaknesses that need to be taken into account, such as the depressed consumer banking spreads. But, said the US bank, the positives outweigh the negatives -- such as loan growth of 29% half-on-half in the Singapore business and 392% year-on-year revenue growth in commodities and equities to $236 million. With numbers like these, it's as if Standard Chartered completely avoided the financial crisis.

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