Six years ago it would have been hard to design a bank better suited to weather the financial crisis than Standard Chartered.
About its only link to the west were its London headquarters and a UK listing, while its extensive footprint in the booming east ensured that it became a favourite with investors in the aftermath of the crash as funds looked to escape banks mired in bad debts and litigation.
On the second anniversary of the crisis, in 2010, Standard Chartered shares were trading around £19, having staged the strongest post-crisis rebound of any British lender. Since then, the story is not such a happy one.
As developed markets have recovered, so more questions have been asked about the strength of the developing world and, in particular, Asia’s boom. Bulls have continued to insist that Asia, by which they mean China and India, remains on a steady path of growth, but as the region’s economies have slowed, Standard Chartered has faced tougher scrutiny from the markets.
A decade-long run of record profits may only just have ended, and it is only fair to point out that the bank is judged against a higher performance benchmark than its more domestically focused peers, but the truth is that the way such an extended run of earnings was achieved never received the type of close analysis it is now getting.
Loans to large Asian conglomerates were cash cows for years, but provisioning against potential losses is lower than some are comfortable with, particularly in India and Singapore.
On top of potentially higher provisions, capital rules continue to bite and it is likely given the greater risk weights being applied to assets linked to other financial institutions that the bank could face an additional earnings drag.
Financial institutions make up 40 per cent of risk-weighted assets at Standard Chartered, more than double the proportion at HSBC, and quadruple the exposure of other British lenders, meaning the incoming weighting will hit it harder than most.
Finances aside, management of the bank is a growing area of uncertainty and any change at the top could bring more writedowns.
$9.3bn Revenue
$3bn Profit
MY ADVICE Sell
WHY The bank’s problems are only just beginning. There is likely to be further pain as the slowdown in Asia continues
There are probably worse businesses to be in at the moment, but writing motor insurance policies is probably among the worst in the UK.
As Admiral Group shares lost more than 5 per cent of their value yesterday the motor insurer tried to put the most positive spin it could on a continuing fall in premiums and the erosion of margins. Though the company reported a small rise in profits the market saw through the ruse, pointing to the release of cash reserves from previous years to boost earnings.
The hope must be of an upturn in the underwriting cycle. RSA said last week that it had pulled back from the business because it could not continue writing “unprofitable” policies, and if this trend continues Admiral could eventually be right.
In the meantime, there were few bright spots for the business to point to, though its move into the US could eventually deliver the “huge potential” the insurer says it might. The move of Kevin Chidwick, Admiral’s chief financial officer, to take over the running of the US Elephant Auto Insurance business highlights the seriousness of the company’s intent to find growth outside the UK.
£1bn Revenue
£183m Profit
MY ADVICE Hold
WHY Needs to show that it can perform overseas
If the car market were a proxy for consumer spending and confidence then we would not have had the sluggish, non-feelgood economic recovery that we have experienced.
The sale of new cars has risen month on month for the past 29 months, up 10 per cent year-on-year. Getting on for 2.5 million new cars will find their way on to UK streets this year. In this country there is one car for every two people — men, women and children.
Plainly, the business of selling motors bears no relation to the state of the economy. It has more to do with cheap credit, PPI windfalls, the fuel efficiency of new cars which makes them more cost effective, and the flooding of the British market with cheaper vehicles because the manufacturers can’t shift units on the continent.
There is a decent argument that says the benefits of at least three of these will begin to unwind. Which makes the latest record performance from Lookers — pre-tax profits up nearly 40 per cent at £37 million at the half year on sales up nearly a third at £1.6 billion — all the more intriguing.
Despite these best-ever numbers, the stock market appears to have taken a view already on the smooth-talking car salesmen: Lookers’ shares were barely touched yesterday, leaving the stock looking as if it peaked at about 12 per cent higher.
Add doubt about how consumers will buy cars in the future, it all makes the multiples look like one of those “once-in-lifetime, honest guv” special offers that can be declined.
£1.6bn Sales
£37m Profits £37m
MY ADVICE Avoid
WHY Record results hide growing doubts over market
And finally . . .
Amara Mining thinks it has struck gold. Or rather, Amara has always known that it would strike gold, but now thinks that it might have struck quite a lot of it.
Shares in the AIM-quoted miner soared yesterday after it reported “exceptional drilling results” that the company claimed meant its Yaoure mine in Côte d’Ivoire could become one of the ten biggest in Africa and potentially among the 50 largest in the world.
With a low cost of extraction this could be worth a look.
