The latest deal by Standard Chartered, the British bank with a big Asian presence, may seem odd: It is paying a premium of more than 30 percent for Hsinchu International Bank (
But Standard Chartered has rarely followed a predictable course. And for years, it has defied critics' warnings that it was overpaying for deals, as well as market predictions that it would be gobbled up by a big global bank.
With most of its operations in fast-growing economies from Pakistan to Singapore to the United Arab Emirates, and its largest concentration of customers and profits in Hong Kong, Standard Chartered is now in a position that makes it the envy of many of its investment and commercial banking peers in Europe and the US.
Standard Chartered is in a prime spot to capitalize on some of the biggest trends in global finance, like the growing trade between China and Africa, and between the Middle East and Asia, and booming consumer lending in India.
The bank's 150-year-old roots are in trade: specifically the trading routes of the British Empire, one reason it gets 90 percent of its profit from Asia, the Middle East and Africa.
Its chief executive, Mervyn Davies, acknowledges that Standard Chartered's astute growth in emerging markets may only make it more appealing for a bigger bank predator. But he certainly isn't encouraging any offers.
"Look, we are in the right place at the right time, and a lot of banks would like to have this franchise," Davies said in a recent interview. "If they can manage it better, and can pay a huge premium to shareholders, in cash, well, that's my job -- my job is to create value."
With a market capitalization of US$34 billion, Standard Chartered would be just a healthy snack for, say, Bank of America at nearly US$250 billion.
But Standard Chartered's success may also be what helps it remain alone -- its shares trade at a healthy price-to-earnings ratio of 16.5, versus 12.8 for HSBC Holdings, its British rival in Asian markets.
Davies is in a good position to be challenging other banks. Operating income was up 15 percent in the first half of this year, to US$3.38 billion, even without last year's US$3.3 billion acquisition of Korea First Bank (including the deal, they were up 27 percent).
"A purchase in Taiwan could be described as brave given the current credit card crisis, but we would rather use the term opportunistic," Dresdner Kleinwort analysts wrote in a recent report on Standard Chartered.
The deal for Hsinchu International should enhance earnings by 2008, the Dresdner analysts noted, adding that they wish Standard Chartered "was not so expensive" presumably so they could recommend that shareholders buy more.
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