Standard Chartered

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Unlike many of its banking peers, Standard Chartered is in the happy position of being able to talk about making big acquisitions without inducing a panic attack in its investors. It has earned this luxury by walking away from many more transactions than it has consummated and successfully integrating those assets it has completed. The latest, SC First Bank in Korea, has performed well since its completion last year and management is working on lowering its cost/income ratio. But Standard Chartered hinted yesterday that it is out of the running for Korea’s LG Card.

This is a confirmation of internal discipline but also suggests that attractive targets are becoming harder to secure, as desire for growth has pushed up prices. More assets are becoming available as emerging markets open up. But the rarity value of assets in some of Standard Chartered’s target markets, like Pakistan and South Africa, makes bargain-hunting tricky.

Another worry is Standard Chartered’s weak performance in Taiwan, where the bank took a loan impairment charge of $203m on its unsecured portfolio in the first half, up from $23m a year ago. With emerging markets looking vulnerable to rising interest rates and inflation, could the group’s exposure become a worry rather than an attraction?

It shouldn’t. In the case of Taiwan, the bank reports that conditions are improving. Standard Chartered is indeed entering a more difficult part of the cycle, but its much diversified business mix and the relatively robust state of the underlying economies in which it operates should make it less vulnerable than in previous downturns. Coupled with its continuing organic growth prospects and some inevitable bid speculation, this is certainly enough to justify its relatively high price of 14.5 times this year’s estimated earnings – and possibly even its modest premium to that other fast-growing bank, HSBC.

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