Asia-focused bank Standard Chartered launched a $5.3 billion rights issue to bolster its finances for new capital rules and provide the firepower to take advantage of growth opportunities, it said.
The bank said it made record profits and income in the third quarter and for the first nine months of the year. Income in the third quarter rose faster than the first-half run-rate and trading levels were almost back to levels of before the financial crisis, it said.
The bank wants to boost its capital “to continue to seize opportunities across Asia, Africa and the Middle East,” it said, adding that the new capital rules could have constrained its asset growth unless new capital was raised.
Regulators, seeking to prevent the repeat of the global credit crisis, agreed last month to force banks to increase the amount of top-quality capital which they must hold in reserve.
Standard Chartered, based in London but deriving over three quarter of its profits in Asia, follows Deutsche Bank in raising capital due to the tougher capital rules, after the flagship German lender this month raised 10.2 billion euros ($14.2 billion), in part to meet the new rules.
StanChart said it would offer shareholders the right to buy one new share for every eight shares held at a price of 1,280p, a steep 33 percent discount to its last price in London.
The bank’s core tier one capital ratio of 9 percent at the end of June was comfortably above the new requirement of 7 percent. The rights issue will raise that level to about 11 percent, although the new capital rules will force it to apply a higher risk weighting to its assets, which could reduce that ratio by 1 percentage point, it said.
Under the new Basel rules the definition of core tier one will be tightened so that common equity and retained earnings must make up the bulk of a bank’s capital base. This means many banks’ core tier one capital ratios will be substantially lower under the new rules than they are at present.
“Basel regulations will be difficult for some Western banks and they want to jump ahead of the line in raising capital before some of the European banks do that,” CLSA analyst Daniel Tabbush said. “It could be the case that Basel regulations penalise more so banks like Standard Chartered and HSBC within Asia, as they are more cross-border.”
StanChart said Singapore state investor Temasek, StanChart’s biggest shareholder with about 18 percent, will support the rights issue.
Some banks believe that to maintain a reputation for financial strength, they need to pre-empt the full impact of the new Basel III rules, which will be introduced gradually by 2019 and will redefine how the ratios are calculated.
The new tier one requirements also mean banks have to set aside more capital to offset their underwriting activities, which StanChart has been stepping up aggressively this year.
StanChart has been particularly active in Asia, where it has been involved on underwriting big loan deals for Bharti Airtel, Vedanta Resources and BHP Billiton, according to Reuters Basis Point.
In August, StanChart posted a record half year profit of $3.12 billion as key markets in Asia performed well and bad debts more than halved.