Very few banks go about raising capital in a better manner than Standard Chartered. The British bank has made a living and a name out of dealing extensively in lending to emerging markets. And they are planning to get another rights issue of $5.2 billion out on the market. This offer comes in just as markets in Asia are starting to fly high thanks to foreign investors pumping in funds as if there were no tomorrow. The funds that Standard Chartered does plan to raise should effectively take its core. Tier 1 ratio of capital to assets to a figure nearing approximately 12 %. This is a measure that the regulatory watchdogs will be watching with a great deal of anticipation as it is. Standard Carteret’s projected year end ratio of 10% is already better than most other European banks.
But there are now new rules under the Basel III norms and over time higher levels of capital will be the norm and not the exception. Capital ratios are odd beasts and there are affected by several other factors as well. For example, risk-weighted assets (used as a common denominator. When talking about the Tier 1 ratio) are also on the rise as regulators start to crack the whip and tighten things in the larger scheme of things. Take the example of JPMorgan Chase; they have predicted that their risk-adjusted balance sheet will soar by very nearly 40% under these new rules and regulations. UBS and Credit Suisse share the same opinion, although their figure is only expected to double and not hit a number as high as JPMorgan’s.
Standard Chartered doesn’t have a similar outlook. But no matter what the case, this fund-raising initiative does look very premature. Regulators have given banks several years to make the cut when it comes to Basel norms. And Standard Chartered is making some $3 billion a year in earnings. Perhaps the banks haste can be put down to its share price that is charting highs. Consider that there might be a 1.5% drop after the issues of the rights. Now even after you factor in the additional capital that will have poured in the shares will be trading at 2.3 times. More than the book value that was anticipated at the end of the year. That is a number that beats out rival HSBC quite comfortably.
Standard Chartered will raise billions from this issue and the bank has several fronts to please once it done with things. For one, there is the small matter of know-towing to regulators and there are several other matters to take care of. Such as increasing their presence in South America where it lags behind Citibank quite considerably and in Africa. Where HSBC is greedily eying Ned bank and could leapfrog Standard Chartered if it manages to take them over. Raising capital is one thing, putting it to good use is quite another. And that is the challenge that lies ahead of Standard Chartered.
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