Beasts of the east

29 February 2012

Both emerging market lenders had a strong 2011, in different ways. StanChart is growing while HSBC restructures. But StanChart is relatively bigger in troubled India and Korea, while hiring has become expensive. Takeover hopes aside, the valuation gap is hard to justify.

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Standard Chartered, the UK-domiciled emerging market lender, reported pre-tax profit of $6.8 billion in 2011, an 11 percent increase on the previous year. But pre-tax profit fell 14 percent from the first half of the year to the second half, driven by higher expenses and an increase in loan impairments.
Income from Hong Kong, which makes up almost a fifth of the group’s top line, grew 22 percent during the year to over $3 billion. Income from India fell 11 percent to $1.8 billion. The group said it had “not been satisfied” with its Korea business, which was beset by strikes in 2011.
StanChart’s expenses were equivalent to 56 percent of income for the full year. Stripping out a $206 million charge for restructuring the Korean division, and $165 million for the UK bank levy, the expense ratio would have been 54 percent.
StanChart trades at 1.5 times its forecast 2012 book value excluding intangible assets, according to Credit Suisse. Rival emerging market lender HSBC, which reported its earnings on Feb. 27, trades at 1.2 times.
StanChart’s UK-listed shares were trading at 1653 pence by 1100 GMT on Feb. 29, a 1.9 percent increase on the previous day’s close.

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