Standard Chartered: Too good to be true?


BBC business editor Robert Peston on bubble economics

It really wasn't so long ago when Standard Chartered was the Clouseau of banks.

When I was a banking editor some 20 years ago, the rule about Standard Chartered is that if it could go wrong, it would.

So I have had to pinch myself periodically over the past seven years, as its profits have risen in a straight line and its shares have soared.

Today Stan Chart's market value at a shade under £40bn is greater than Barclays' and Royal Bank of Scotland's.

Which is quite extraordinary when you consider that Stan Chart's balance sheet is less than a fifth the size of their balance sheets.

For this price differential to be rational, Stan Chart has to be able to safely sustain supra-normal growth in lending and fat profit margins for a very very very long time.

How likely is that?

Well, Standard Chartered is - by dint of its history - big in those parts of the world, such as India, Hong Kong, other parts of Asia, much of the Middle East and Africa, that have emerged relatively unscathed from the 2008 crash.

And Stan Chart has almost no business in the debt-hobbled West.

So it plainly has some big advantages over Barc and RBoS.

But just last weekend, and before Stan Chart launched its £3bn rights issue this morning, the bank's chief executive Peter Sands warned in Washington that regulators' determination to force all banks to accumulate capital could have a seriously depressing impact on the prospects for global growth - because banks would be forced to rein in lending to raise their respective ratios of capital to assets.

If he's right, that will have a negative impact even in the buoyant parts of the world that Stan Chart is lucky enough to call home from home.

But there is a more germane concern about both the rate of growth in places like India and China and the Standard Chartered share price - which is that they may both be manifestations of a new bubble.

That's the bubble pumped up by the unprecedented creation of new money in the UK, US and eurozone - which is leaking out via a new kind of carry trade, a search for capital gains rather than the search for yield of 2002-7.

Money is pouring into Asian assets, such as Stan Chart's shares, because they seem to offer growth potential at a time when western assets offer neither yield or decent prospects of capital appreciation (and are wasting as a result of competitive devaluations).

So here's the question. Is Standard Chartered's £3bn fundraising an example of safety first by a prudent bank, or a hubristic precursor to the acceleration of lending in markets that are becoming a bit too bubblicious?‬‪

You can keep up with the latest from business editor Robert Peston by visiting his blog on the BBC News website.

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