Banks to follow StanChart cash call, terms may worsen

By Chris Vellacott and Denny Thomas

LONDON/HONG KONG (BestGrowthStock) – Standard Chartered’s (STAN.L: ) move to boost its balance sheet with a $5.3-billion rights issue adds pressure on other banks, who may have to accept tighter terms in a more crowded market, to follow suit.

The Asia-focused British bank launched its rights issue on Wednesday at a price and on fees seen as favorable to the company by equity capital markets bankers, reflecting in part a scarcity of similar transactions.

“The terms are a function of market conditions and how much risk there is out in the market. At the moment there are not that many rights issues out,” said one banking source.

Standard Chartered is offering new shares at a 30.4-percent discount to the theoretical ex-rights price (TERP), which accounts for the issuance of the new shares.

That is still deeper than a 21.9-percent discount to TERP on the recent $14.13-billion cash call by Deutsche Bank (DBKGn.DE: ), but later entrants to the market may have to offer bigger discounts.

Standard Chartered said fees would total just over $100 million, or about 1.9 percent of the deal size, with underwriting fees set at 65 basis points and sub-underwriting fees of 1.5 percent.

That’s a significant drop from underwriting fees at the height of the financial crisis in 2009, which hit an average of 2.45 percent compared with 1.62 percent in the 2006-2008 period.

UK regulators probed a possible lack of competition into deal costs, sparked by investor and public anger over high fees for bankers on deals to bail out their industry.


Analysts regard StanChart’s deal as a low-risk trade as it is well capitalized even without the new funds.

Other banks entering a more crowded rights issue market are likely to be offered tighter terms.

National Bank of Greece (NBGr.AT: ) raised 1.8 billion euros in new capital this week after offering rights to new shares at a 40 percent discount.

Other banks tipped as possible candidates for cash calls include Allied Irish Banks (ALBK.I: ), France’s Credit Agricole (CAGR.PA: ) and Societe Generale (SOGN.PA: ) or Germany’s Commerzbank (CBKG.DE: ).

StanChart made clear UK regulators might impose tougher capital rules than elsewhere, which could pressure UK rivals.

In Asia, strong economic growth is driving demand for loans and banks may seek to raise capital just to sustain growth.

Most banks in Australia and a few in Thailand, Taiwan and Malaysia are likely to raise capital, analysts said, suggesting there could be an early mover advantage.

China’s top four lenders have already raised capital this year, but equity capital market bankers said they are likely to come back to the market soon as loan losses bite and their regulator may also apply tougher standards.

“All these factors tell you that Chinese banks will not be far away from rushing to raise capital again,” one Hong Kong-based investment banker said.

(Additional reporting by Steve Slater, Editing by Sitaraman Shankar)

Banks to follow StanChart cash call, terms may worsen