Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) has been on the slide since its share price hit a peak of 1940p in March last year. It has since plummeted more than 30% to 1329p today. That’s quite a comeuppance for a bank that niftily sidestepped the global financial crisis and which posted record annual profits for a full decade.
The trouble began last spring, when US investor Carson Block revealed he was shorting the bank’s bonds over fears about its “deteriorating loan quality”. Standard Chartered rejected the accusation, but some of the mud stuck.
Many investors piled into Standard Chartered because it gave them FTSE-based exposure to emerging market growth in Asia and Africa. Last year, emerging markets fell out of favour, and Standard Chartered followed. It suffered a $1 billion write-off in Korea, endured a slowdown in other Asian markets, and was punished as the Indian rupee and Indonesian rupiah depreciated sharply against the US dollar.
The bank’s share price fell 7% in a single morning in early December when management admitted that “difficult market conditions that began in August” would have a “significant impact” on second-half performance, particularly its financial markets business. Management’s claim that “the balance sheet remains highly liquid, conservative, and well-diversified by product, by industry and by geography” did little to reassure anxious investors.
Unchartered waters
So far this year, things have gone from bad to worse. Standard Chartered started 2014 by losing finance director Richard Meddings, the public face of the company, who quit after 11 years as part of a wider management reshuffle. His departure hasn’t been fully explained, leaving the City rumour mill to plug the gap. Some people fear that the bank expanded its balance sheet too rapidly during the emerging markets boom and now faces a toxic shock. There has been talk of a rights issue. Others suggest that Standard Chartered’s problems are a red flashing light warning of trouble to come in Asia.
All of which makes Standard Chartered cheap right now. You can buy it at 9.1 times earnings, against 15 times for HSBC Holdings plc, another UK-listed bank with emerging markets exposure. For that you get a yield of 3.84%, just above the FTSE 100 average of 3.5%. There are signs of hope. Earnings per share are set to grow 10% in 2014 and 2015, which follows an 8% drop last year. That would take the yield to a forecast 4.9%. Things should get better for Standard Chartered in the longer run, but the short-term could be turbulent. Keep an eye on this stock. There may be an even better buying opportunity ahead.
