Standard Chartered (StanChart), the third-largest bank in the United Kingdom by market value, wants to do business almost exclusively in Asia and emerging markets. Any executive of the lender who dares to depart from that strategy risks the wrath of Mike Rees, the chief executive officer for corporate banking.
“Mike will say, 'I will bring up a cricket bat or baseball bat and hit you if you go off strategy,” says Sean Wallace, Standard Chartered’s head of corporate finance.
Rees’ hard-nosed stand is endorsed by Standard Chartered CEO Peter Sands. “People know they get banged on the head if they go offbeat,” he says.
The reason for what Wallace calls the 150-year-old bank’s ‘maniacal’ determination to stick to the Asia-based model is its history of false starts. Beginning in the 1970s, Standard Chartered went through a series of acquisitions and expansions that gave it branches and affiliates on every continent, and landed it in a sea of red ink in the 1980s.
The bank also admitted to several ethical lapses in the 1990s and got hit with disciplinary actions in India and Hong Kong, two of its biggest markets.
“We had a lot of banana skins from our previous years,” says Rees, 53, who has been with the bank since 1990. “I’ve got the scars. The tragedy would be if I let those mistakes happen again.”
Standard Chartered hasn’t made many mistakes lately. In 2009, total return on its shares soared 79 per cent as of November 3 — the second-best performance of Britain’s top five banks after Barclays, and four times the gain of its archrival, London-based HSBC Holdings.
Total return in the 12 months through November 3 was 78.3 per cent compared with 9.5 per cent for the FTSE All-Share Banks Index.
The bank didn’t entirely dodge the global financial upheaval; its stock fell 46 per cent in 2008. Yet the bank’s profits were barely affected, rising 20 per cent to a record $3.4 billion compared with 2007, on revenue that was up 26 per cent to $14 billion.
Profits have quadrupled since 2002, when then-CEO Mervyn Davies made the decision to strengthen the bank’s position in emerging markets. Davies is now UK minister for trade and investment.
Unlike half a dozen of its peers, Standard Chartered required no bailout from the British government. Instead, Malaysia-born Sands, 47, was an adviser to Prime Minister Gordon Brown on the rescue of Lloyds Banking Group, Royal Bank of Scotland and other institutions.
Nick Lord, head of Asia banking research at Macquarie Securities in Hong Kong, rates the bank a buy. “If Standard Chartered goes through this downturn and performs well, that would be quite a big psychological thing,” Lord says.
“There is still a lingering doubt as to whether it has genuinely become a better-quality bank.”
Though headquartered on Basinghall Avenue in the City of London, Standard Chartered is very much an Asian bank, with 71 per cent of its 2008 revenue originating in the region, while another 12 per cent came from West Asia and Pakistan and 7 per cent from Africa. The bank’s biggest shareholder, with 18.3 per cent of its stock, is Temasek Holdings, Singapore’s state investment company.
Sands says his institution underwrote none of the subprime-mortgage-backed securities that laid low other British and American banks. And the bank has bolstered its position in Asia with a string of acquisitions. In 2000, it bought Melbourne-based ANZ Grindlays Bank, which made it the biggest foreign lender in India, Pakistan, Sri Lanka and Bangladesh. Since then, it has made 25 additional purchases, including the 2005 purchase for $3.3 billion of Korea First Bank, now SC First Bank Korea, in its biggest deal ever. Its global staff has doubled to 70,000 since 2002.
In recent years, the bank has underwritten a series of transactions between companies in China and Africa. The bank has Nigerians on its staff in China, and Chinese in Nigeria.
One of Standard Chartered’s biggest cross-border deals was a bust. It represented India’s Bharti Airtel, the country’s largest mobile-phone operator, in its proposed $23 billion acquisition of 49 per cent of Johannesburg-based MTN Group, Africa’s largest wireless carrier. That transaction collapsed in late September after it failed to win approval from the South African government.
The new Standard Chartered hasn’t entirely adhered to Mike Rees’ decree that it stick to what it knows. In 2006, it strayed far from its Asian territory and loaned an undisclosed amount of money to Brookings, South Dakota-based VeraSun Energy Corp, the second-largest US ethanol producer.
VeraSun filed for bankruptcy in 2008 after ethanol prices plunged, and the loan may never be repaid.
That deal is a clear candidate for Rees’ cricket bat.
