Why SBI is losing market confidence?
Our literatteur in mint residence has outdone himself for a change. Tamal’s work for Bankers’ Trust[a serious column on page 6 of monday's mint] that was mostly a shadow of [yet tbd] in mint has exposed reference data services from bigger financial research providers for what even an academic can provide from an inside track of things at SBI. The behemoth in question suddenly sprung a huge shock this quarter in results, while 20 years of reference data building still had us all wrapped in knots [pun unintended, if you caught mexican chilli here].
With excess cash of $10B and a capital raising of $4B in the year, SBI is unremunerative losing nearly $1.69B in opportunity cost apart from added leverage being lost because of high gross NPAs of $4.2B. The new incumbent in the Chairman’s office is due inMarch, with the two remaining MDs also leaving within the year. Though in PSEs it is well nigh impossible to have a better situation on the ground, upcoming consolidation with associates and high unproductive staff costs that have pushed cost income ratios to an all time high, mean the extreme risk of a down spiral within the bank leading from the latest results being probable [ risk in double digits ]
The augean stables are as they were two decades and a restructuring earlier, the bank like India’s power PSEs forcing government to show its socialist hand and due largesse in regulation to make this species fly again as the other one inEurope gets ready for a big nursing stay at the German hospital.
Why Stanchart is coming to India? It's really cheap for the price..
Standard Chartered raises capital in India
The world has changed. Not overnight, but after 2008 the flavour is distinct. There is more anger. There is more of a challenge in the wlobal banking diaspora discovering their new benefactors. Like always, many fromthe global banking sector have been displaced in the crisis. They are out of options to raise capital with Citi still struggling to sell over $100bn of its bad bank assets, Goldman Sachs fighting phantoms of discord with super regulators yet to be formed, trying to shout in favor of regulations that bring in new regulators to oversee banks, new regulations that ordain higher amounts of capital for each bank in the US and with Vince Cable, also in Europe.
In the mean time, HSBC is already operating from new Asian headquarters. Standard Chartered is dealing with the new world by showcasing its charms in Asia. While it holds adequate capital against assets of $200bn (December 2009) to the tune of $19B in Core Tier I and an equal amount in Tier II, It is closing the year 2009 in $5B in profits on sales of $15B. Against this backdrop, the bank is rumored to have priced its Indian Depository Receipt issue at only $2.5 and less for a total raising of EUR 500mn or GBP 400MN for new shares of 1.16%. That values the bank closer to only $5B for this issue leaving it well targeted in the island of economic prosperity in India (and China where HSBC is targeting the kill) for a close to o5-10X appreciation after listing in the 2nd week of June.
Emerging Market dominance
It is the latest in a series of firsts that have marked the international economic climate and India that has prolonged the boom years and made the slow pace of financial reforms bearable. As the government’s agents walk towards the torturous goal of managing socialist anti WTO rhetoric and populist sentiment with economic grandeur, Infrastructure finance, retail lifestyle markets and FDI from retail to defence now has a new leg to rely on in these ‘foreign’ banks with more than INR 1Trillion in assets in India. With India as a source of economic capital the banks also have a new hope for the rugged decade ahead with US and Europe lying in tatters seemingly, but surviving nonetheless. Already lending profligacy is speeding up in the retarded US finance sectors itself and as the currencies balance out the new path it will be good to see Stan Chart in India, much like it would be good to see Yuan floating. Did you know dollar trade from Brazil and Russia to the extent of $40bn to China is already denominated in Chinese Yuan?
So which ones are the developing markets now? Do we really need that distinction? The SWFs from China, Singapore, Korea and Abu dhabi are already active investors in global currency. It is time for more to join so India can also launch its capital account convertibility campaign.
And of course, SCB IDRs are a must invest at INR 1000-1200 for the SCB share Each IDR representing 0.10 shares, or GBP1.6 at LSE prices and HKD 19 at Hangseng prices ( or $2.8 / Rs. 130 assuming INR40-44 for the Dollar). SCB is obviously looking at using this new economic weather vane to bolt the stables on the right valuation orbit and India shareholders ( IDR holders) will be willing provided the consistent profit record is maintained.
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