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StanChart plans $11 billion rights issue

Singapore, October 13, 2010

Emerging markets bank Standard Chartered plans to raise as much as $11 billion through a rights issue to strengthen its finances ahead of the introduction of new global capital rules, the Financial Times reported on Wednesday.

Regulators, seeking to prevent the repeat of the global credit crisis, agreed last month to force banks to increase the amount of top-quality capital which they must hold in reserve.

Deutsche Bank kicked off a post-Basel III round of capital hikes earlier this month, raising 10.2 billion euros ($14.2 billion), in part to meet the new bank capital rules.

StanChart's Hong Kong-listed shares were suspended from trade pending an announcement relating to a corporate action, the Hong Kong stock exchange said. Trading will resume on Wednesday afternoon.

A StanChart spokeswoman in Hong Kong declined to comment, while officials in London and Singapore were not immediately available for comment.

The UK-based bank could announce plans to raise 5-7 billion pounds ($7.9-$11 billion) as early as this week, the newspaper said, citing people close to the cash call.

A source familiar with the deal said Singapore state investor Temasek, StanChart's biggest shareholder, will support the rights issue.

The size of the rights issue was smaller than that reported by the FT, the source said, without providing further details.

A spokesman for Temasek, which owns about 18 percent of the bank as of March 2010 according to Thomson Reuters data, declined to comment.

Standard Chartered last raised about 1.8 billion pounds in a rights issue late 2008. JPMorgan, Goldman Sachs and UBS had handled the sale then.

Capital rules

Some banks believe that to maintain a reputation for financial strength, they need to pre-empt the full impact of the new Basel III rules, which will be introduced gradually by 2019 and will redefine how the ratios are calculated.

StanChart reported a core tier one capital ratio of 9 percent on June 30, comfortably above the new requirement of 7 percent.

However, under the new Basel rules the definition of core tier one will be tightened so that common equity and retained earnings must make up the bulk of a bank's capital base. This means many banks' core tier one capital ratios will be substantially lower under the new rules than they are at present.

'Basel regulations will be difficult for some Western banks and they want to jump ahead of the line in raising capital before some of the European banks do that,' CLSA analyst Daniel Tabbush said. 'It could be the case that Basel regulations penalise more so banks like Standard Chartered and HSBC within Asia, as they are more cross-border.'   

Active in underwriting

The new tier one requirements also mean banks have to set aside more capital to offset their underwriting activities, which StanChart has been stepping up aggressively this year.

StanChart has been particularly active in Asia, where it has been involved on underwriting big loan deals for Bharti Airtel, Vedanta Resources and BHP Billiton, according to Reuters Basis Point.

In August, StanChart posted a record half year profit of $3.12 billion as key markets in Asia, where it makes about four-fifths of its profits, performed well and bad debts more than halved.

Shares in StanChart rose 2.1 percent in a slightly weaker UK market on Tuesday, with traders citig talk that JPMorgan is interested in making a takeover approach.

StanChart's capital raising could also be to send out a message that it was not up for sale, CLSA's Tabbush said. – Reuters




Tags: Singapore | Standard Chartered | capital | StanChart | rights issue | Basel III |

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