What not to read into StanChart's stock price tumble

November 04, 2015 13:16
Standard Chartered's playful image comes for the most part from the annual Hong Kong marathon which bears its name. Photo: Xinhua

It looks like things couldn't get any worse for Standard Chartered Bank.

After announcing 15,000 job losses and a plan to seek a US$5.1 billion lifeline, StanChart saw its stock tumble to an inauspicious 666 pence (US$1.03), down a similarly unpropitious 6.6 percent.

That's five 6s in a string -- a bad omen for the superstitious.

Standard & Poor’s hit a trough of 666 during the 2008 financial tsunami but closed overnight at 2,110.

Has StanChart seen the worst?

The answer is yes, if HSBC and Citibank are any guide.

StanChart will emerge like a rainbow after a rain because a strong franchise bank should not be trading at half of its book value.

In 2008, StanChart, one of Hong Kong three note-issuing banks, had a bigger market capitalization than Citibank when the financial storm struck.

The London-based Asian bank was one of a few financial institutions that met a series of stress tests that followed.

It didn't recover quite as fast as Citibank or HSBC and at one time fell below its IPO price which meant long-term investors lost a lot of money on paper.

But having found the floor, the stock had nowhere to go but up.

The next question is whether StanChart's present situation has anything to do with the notion that Hong Kong's former colonial icons are becoming less relevant to domestic investors.

Ask any HSBC shareholder who still remembers its glory days in the 1990s.

He will tell you how utterly helpless investors felt when the stock was trapped in the low 60s for most of the past two years.

HSBC lost its place among the top three companies in the Hang Seng Index, now ruled by mainland behemoths China Mobile, Tencent Holdings and China Construction Bank.

Still, many people have a warm feeling toward HSBC, perhaps as much as they have a soft spot for StanChart.

But unlike HSBC which comes across as a brooding giant, StanChart has a more fun-loving image.

That comes for the most part from the annual Hong Kong marathon which bears its name -- the race will be 20 years old next year -- and from its innovative business practices such as a birthday leave for its staff, a first for a Hong Kong bank.

In 2009, StanChart became the first bank in the world to issue a legal-tender 150-dollar note to mark its 150th anniversary.

Things soured after US regulators investigated the bank for suspected malpractice in emerging markets which resulted in heavy fines.

It was the end of a winning streak powered by successive 20 percent annual profit growth rates. 

Last year, StanChart brought in a new chief executive, Bill Winters, to clean up the mess.

He quickly got rid of 250 managing directors and shut down a profitable derivatives business as the bank headed into a painful winter.

That reminds me of a joke about a certain Hong Kong telecom company that wanted to get rid of excess fat.

It trotted out a downsizing expert surnamed Butcher who quickly inspired sub-editors to come up with catchy headlines like "The butcher has arrived".

That also reminds me of a former editor who bought only StanChart shares, his only investment after the financial crisis, knowing in his heart the bank will survive and go on to prosper.

He is nursing a paper loss but I hope he is right about the bank resurrecting its heyday. 

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EJ Insight writer