Standard Chartered has fared well by focusing on core banking services in emerging markets. But in the wake of the crisis, it is facing increased competition from domestic banks.

When Chartered Bank issued its initial public offering prospectus to investors in 1852, its proposition was simple: the export of British manufactured goods to India and China had quadrupled over the previous 18 years and there was a great deal of money to be made in financing lucrative trade flows. Of the Indian banks quoted in London, Oriental Bank's value had risen by 75%, Agra and US bank by 39% and Commercial Bank of Bombay by 25%. The rapid increase in the value of those banks was, the prospectus claimed, "the best proof of the profitable description of the business".

The direction of trade flows may have been largely reversed, but the bank's modus operandi remains the same. Today, as Standard Chartered (following its merger with South Africa's Standard bank in 1969), more than 90% of its profits are still earned in the emerging markets. By sticking to what it sees as its core business - providing key banking services to clients in those emerging markets - it has performed well through the crisis, with income up by 26% and profits up by 13% in 2008. "[Our] proposition - that the best growth is to be found in the emerging markets - has not changed," says Mike Rees, chief executive, wholesale, at Standard Chartered.

Mr Rees has good reason to have faith in Standard Chartered's model: the wholesale division has seen even better growth than the group, with income up by a staggering 43% to $7.49bn and operating profit before tax up 28% to $3bn in 2008. With many other international banks focused more on their home markets or repairing balance sheets, Standard Chartered has gained market share in key areas for the bank such as trade finance, project and infrastructure finance, cash management and syndicated loans.

Basic thinking

The bank's success is founded on remembering the thing that many other banks have forgotten, says Mr Rees. "We are a service industry; some banks have forgotten that," he says. "As an industry we provide the fundamental banking services that keep economies going and help them to grow. We are the payments infrastructure; the maturity transformation agents. Banks have to get the basics right."

At Standard Chartered, this means business is built on being a relationship bank - ie: one of a company's top three banks that provides its basic banking services. All other business is built on that foundation. "Companies give 70% of their business to their top three relationship banks; 40% to the top bank, 20% to the second and 10% to the third. They are the only three who compete on relationship. All the others compete on price. So we want to be a core bank for our clients," he says.

Providing credit is the gateway to a relationship with the entire bank, says Mr Rees. "If we then do the business for clients that has to get done - cash management, trade finance and payments - we will win the kind of value-added business that makes a difference to their profitability and to ours. For clients, this means managing their risk, lowering their cost of funding and adding yield. For us, that means offering derivatives, foreign exchange, bonds and syndicated lending." At the very top of the value chain sits the strategic piece of the business that is fundamental to the future direction of a client's business - offering corporate finance services.

In pursuit of this, Standard Chartered has been slowly building this capability. In 2006 it acquired pan-African corporate advisory First Africa; at the end of 2007 it acquired oil and gas merger and acquisition advisory Harrison Lovegrove. It acquired a specialist capital markets team and some fixed assets from Lehman Brothers Brazil in November 2008. This year it acquired Cazenove Asia from JPMorgan.

Organic growth 

There is also serious organic growth. Since January, it has hired David Douglas from Lehman Brothers to be global head of equity capital markets (ECM) and Henrik Raber from UBS to head the European ECM business. Ronnie Potel has joined from Citi to be global head of convertible bonds and equity linked origination. Both the acquisitions and the hires have swelled Standard Chartered's headcount from 28,000 in 2003 to more than 70,000 this year.

While there has recently been a focus on building both equity and advisory capabilities, this is not product-led growth, says Mr Rees. "Product-led strategies tend to end in tears. To keep making more money you have to keep going up the risk spectrum. Whereas if you are servicing your clients' growing needs, then as their wallet for financial services grows, you grow with them."

For the past decade, says Mr Rees, Standard Chartered has been able to finance client needs through the debt markets. That era has come to an end. "The world has changed," says Mr Rees. "Going forward there will be more balance between financing through the debt and equity markets. There are surplus funds available through the equity market which we will need to access for our clients. Cazenove Asia presented a perfect bolt-on for our business."

Serving what Mr Rees calls the "hierarchy of client needs" has led Standard Chartered into other business areas. For example, it acquired Pembroke Aircraft Leasing at the end of 2007 and added a fleet of 14 aircraft to its portfolio in April this year from GE Commercial Aviation Services. "The aircraft from GE are all for existing Chinese clients. By meeting this kind of specialised need for clients we help them to grow, and strengthen our relationship with them."

Meeting client needs has also led to a growing principal investment business. The bank's portfolio was worth $1.4bn at the end of last year, invested in a variety of companies across Asia. "Ours is not like most banks' private equity businesses," says Mr Rees. "We largely invest 'in' clients to enable them to grow or complete a project. Again, it is not about the deal in itself; it's about building the relationship with the client, which brings us to the deal."

Thinking local

Another fundamental tenet for the bank is the pursuit of local strength; the idea that the bank is perceived in local markets almost as a domestic player. This became more important following the Asian crisis in 1997, when domestic banking markets in Asia consolidated; Singapore, for example, went from 13 big domestic banks to three. "As local banks got bigger, they left less room for foreign banks," says Mr Rees.

Since the Asian crisis, Standard Chartered has grown its presence in domestic markets via acquisitions, to include more than 400 branches in South Korea, 172 in Pakistan, more than 400 in Indonesia and 100 in Taiwan. In India, it has 90 of the 250 foreign-owned branches. In China it has 60 branches in 20 cities. In Africa it is a big local bank in 14 countries. "The competitive edge this give us over international banks is local distribution. Our competitive edge over domestic banks is international reach coupled with product sophistication."

In the wholesale bank it has 20,000 mid-market clients across Asia, Africa and the Middle East. "A mid-market client in Singapore, for example, may have manufacturing operations in China, Vietnam or Indonesia. We need to meet both its geographic and product needs."

Mr Rees believes it is this ability to "stitch" the network together that is really beginning to differentiate the bank from its competitors. Chinese and Indian clients are looking at African investments, so it built-out its corporate advisory capabilities there through First Africa. A lot of commodity and energy flows now trade in Geneva, so last year it opened an office in Geneva to support the growth of the bank's trading clients. "You have to understand the trade flow in order to make the franchise really work," says Mr Rees.

Intensified competition

How successfully Standard Chartered has established itself as a 'local' bank will be tested fully in the coming years. It is not competition with other international banks that occupies Mr Rees's thoughts; it is the growing power of local players.

"The crisis has increased the intensity of the competition that we face from local banks," he says. For one thing, many Asian banks, for example, are awash with liquidity and this is clearly playing itself out in the local currency fixed income and syndicated loan markets. "If you look at these markets you will see hardly any foreign players; it's all local banks," says Mr Rees. "The crisis has given local banks the perfect opportunity to use their liquidity and their relationships to accelerate growth in their domestic markets."

Moreover, he sees this trend continuing - and being supported by policy making and regulation. "Politicians and regulators want to structurally create sustainable economic growth. Because the financial sector is a key enabler of that economic growth, it is entirely logical that politicians or regulators should favour local banks over international banks."

Asked if we are seeing a shift to the East, Mr Rees contends that we are seeing a return to normality. "If you look at GDP figures over the past 300 years, it was countries like India and China that performed better. The past 100 years has been the anomaly."

Career history 

Mike Rees

2004 - appointed a director of Standard Chartered Bank.

2004 - promoted to the new role of CEO wholesale banking, responsible for all commercial banking products, in addition to his responsibilities for global markets products.

2002 - appointed regional treasurer in Singapore, responsible for south-east Asia treasury businesses.

2000 - appointed group head of global markets, in line with the broadening of the treasury business into debt capital markets.

1990 - joined Standard Chartered Bank as chief financial officer for group treasury.

1980 - joined JPMorgan as head of financial and regulatory reporting.

1978 - joined Whinney Murray, Birmingham, where he qualified as a chartered accountant.

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter