Standard Chartered plc

1853–2000

Total Assets: £68.59 billion ($102.2 billion)

Stock Exchanges: London

Ticker Symbol: STAN

NAIC: 522110 Commercial Banking; 522210 Credit Card Issuing; 522293 International Trade Financing

Standard Chartered plc operates as the leading emerging markets bank in the world. The banking group, known by many in the banking industry as Stanchart, operates over 500 offices in 50 countries throughout the Asia Pacific region, South Asia, the Middle East, Africa, the United Kingdom, and North and South America. Its Consumer banking division--responsible for 58 percent of operating profit in 2000--provides customers with credit cards, personal loans, mortgages, and investment services. Its Wholesale banking unit caters to corporate clients in the trade finance, cash management, custody, lending, foreign exchange, interest rate management, and debt capital markets. In 2000, the majority of Standard Chartered's revenue stemmed from its Hong Kong and Asia Pacific region operations, while the Middle East accounted for 18 percent, North and South America and the United Kingdom secured 14 percent, and Africa claimed 9 percent of revenues.

Origins

Standard Chartered was formed in 1969 as a merger between the Standard Bank, which did business throughout Africa, and the Chartered Bank, which operated branches throughout India, China, and southeastern Asia. Lacking a truly strong domestic network, the banking group's progress has been largely dependent upon Third World economic and political conditions and emerging markets--an unenviable position at times.

Both the Standard Bank and the Chartered Bank had been in operation for more than a century when they combined forces. The Chartered Bank, originally incorporated in 1853 as the Chartered Bank of India, Australia, and China under a charter from Queen Victoria, was influential in the development of British colonial trade throughout Asia. Up until World War II, British trade in Asia flourished, and the Chartered Bank prospered.

The Standard Bank was established in 1862 as the Standard Bank of British South Africa by a schoolmaster named John Paterson. Paterson had eclectic interests, including mining, railroad promotion, and real estate development. He set out to make Standard a large bank, and proceeded to acquire smaller banks throughout southern Africa. For the next century, the bank played a significant role in the banking of the region.

The first was the $1.34 billion cash purchase of ANZ Grindlays Bank's South Asian and Middle Eastern banking operations.

1920–1974

Since both banks were products of the colonial era, with similar structures and experience, they made an excellent match. Their complementary geographic coverage and similar historical backgrounds made for a relatively smooth transition.

Integration and Expansion into Euro-Currency Markets: 1970s

The new Standard and Chartered Banking Group took its time integrating the management of the two banks. Throughout 1970 each former unit performed its operations more or less unchanged--indeed, bank branches continued to operate under their old names for a number of years. Each was able to expand independently in its own markets, and there was no need to immediately restructure either of the bank's operations. However, the company slowly began to develop long-term plans for the entire bank.

Standard Chartered's first chairman, Sir Cyril Hawker, came to the group from the Bank of England, where he had served since 1920. His sensitivity to the needs of developing nations made him an excellent choice to guide Standard Chartered in its early years. In 1970, Hawker brought Standard Chartered deeper into the euro-currency markets. Both the Standard Bank and the Chartered Bank had entered these markets in the 1960s. By 1970, Standard Chartered was using funds generated in the Euro-markets to finance projects throughout the world.

Because of its Third World involvement Standard Chartered dealt with more problems than most banks. Unstable political and economic conditions posed a constant threat to the bank. During the 1960s, some branches were nationalized by the countries they operated in. In the 1970s, though conditions were generally calmer, Standard Chartered had to be prepared to adapt to the whims of sometimes irrational governments in Africa and Asia. Wars and rebellions were a constant threat. When new regimes came to power, Standard Chartered's branches were at times subject to new regulations, nationalization, or a transfer of ownership to native financiers. In 1970, for example, the African nation of Zambia partially nationalized the Standard Bank operating there. Nationalization was the greatest fear of any overseas bank operating in politically unstable countries. At the same time, however, these regions were often very profitable.

In 1971, the Eastern Bank, a Middle Eastern bank Chartered had acquired in 1957, became fully integrated with the Chartered Bank. The Standard Bank's Nigerian branches had a good first year in the reconstruction period after the civil war there ended in 1970. Operations in Hong Kong, Singapore, and Malaysia showed strong results in the early 1970s, although depressed economic conditions in South Africa resulted in a poor performance for the Standard Bank branches operating there. Nevertheless, the bank's dependence on the unreliable conditions of Third World nations induced it to seek a stronger foothold in industrialized nations to add stability to its international network. Throughout the early 1970s, the bank increased operations in European and U.S. capital markets and began to cooperate with other international banks.

In 1973, the banking group diversified heavily. The acquisition of Mocatta and Goldsmid Ltd. brought Standard Chartered into the gold and precious metals markets. The group's computer leasing company, Standard and Charted Leasing, expanded into European markets. The banking group also formed a partnership in a merchant bank.

Focus on Overseas Commercial Banking: Mid- to Late 1970s

By 1974, Standard Chartered's gradual integration was complete and the managements of the Standard Bank and of the Chartered Bank came together under one roof. In August 1974, Sir Cyril Hawker retired and was replaced by Lord Barber. Barber oversaw the formulation of a long-term strategy for the bank. Standard Chartered would concentrate on what it did best: overseas commercial banking. Unlike a growing number of international banks during this period, Standard Chartered did not intend to branch into other areas of financial services. The bank would continue to strengthen its European position to offset fluctuations in Third World economies, but would not attempt to enter retail banking in Britain. The 17 British branches Standard Chartered already operated focused on import-export financing and banking support services.

1974–1988

In 1974, Standard Chartered's diversity was key in insulating it from a worldwide recession. In October 1975, the group changed its name to the Standard Chartered Bank Ltd., although subsidiaries throughout the world still operated under their old established names.

The bank grew throughout the late 1970s. Profits improved consistently, and assets continued to grow. In 1979, Standard Chartered made a major acquisition in the United States by purchasing the Union Bancorp of California.

As international banking competition became more intense, Standard Chartered's management began to see weaknesses in the bank's lack of a domestic base. In 1981, the group bid on the Royal Bank of Scotland Group. This bank had the domestic branch network that Standard Chartered wanted and was amenable to a takeover by Standard Chartered. However, a rival bid by the Hongkong and Shanghai Bank sent the issue to the British Monopolies Commission, which ruled against both bids. The banking group entered the 1980s heavily reliant on the financial success of underdeveloped nations.

Financial Woes: Mid- to Late 1980s

The 1980s were difficult times for many of the countries where Standard Chartered operated. Singapore and Malaysia fell into a serious recession in the mid-1980s. As Hong Kong's shipping industry struggled to survive, a number of large loans went bad, putting Standard Chartered in serious financial straits. By 1986, the Standard Chartered Bank was in a financial mess. The bank's strategy of focusing on commercial banking proved to have been an error, as large customers were choosing international banks that could provide them with a complete line of financial services, including stockbroking and issuing commercial paper. Capital markets and money markets were deregulated in many countries in 1986, leading to increased competition for which Standard Chartered was unprepared.

Standard Chartered's affiliate in South Africa had performed inconsistently in the 1980s, but was for the most part a profitable venture. Growing political pressure to divest South African holdings caused the bank some unrest. Standard Chartered was reluctant to sell its 39 percent interest in the bank at the unfavorable exchange rate of the time and take a large loss. Finally, in 1987 the bank divested its South African holdings, ending its 125-year presence in that nation. It was the last foreign bank to leave South Africa.

In 1986, London saw an explosion of mergers and acquisitions among banks with the financial deregulation known as the "Big Bang." Standard Chartered became the target of a takeover by Lloyds Bank, which Standard Chartered's chief executive, Michael McWilliam, was determined to prevent. The purchase of 35 percent of Standard Chartered's shares by three businessmen helped to thwart the Lloyds bid. Standard Chartered received a thrashing in the British press when it became known that one of its white knights, Tan Sri Khoo, had received a large loan from the bank just before he invested in its shares, but the bank called for an investigation to clear its name and was vindicated by the Bank of England a year later.

Although Standard Chartered was successful in warding off the hostile takeover by Lloyds, its troubles were not over. The banking community's dependence on the Third World caught up with it in 1987, when, due to larger loan-loss provisions, Standard Chartered showed a net loss of £274 million. McWilliam tried to restructure the bank's operations and replaced many high-ranking executives. Chairman Sir Peter Graham stated that the bank needed to inject new capital through a rights issue. In 1988, the bank reversed its position on divesting non-core assets to raise capital and sold the United Bank of Arizona to Citibank and later, its profitable Union Banking group to California First, a subsidiary of the Bank of Tokyo.

Standard Chartered's situation began to improve in 1988. A new rights issue in September of 1988 helped repair the bank's capital balance. Profits for the first half of 1988 were £154 million compared to a loss of £222 million during the same period a year before. McWilliam, who had directed the bank's operations during its stormiest year, resigned in early 1988 and Sir Peter Graham, who had been chairman for only two years, retired. Rodney Galpin took over as both chairman and chief executive. Galpin had spent most of his career at the Bank of England and intended to be a "hands-on" chairman.

1990–2001

Focus on Emerging Markets: 1990s and Beyond

Upon entering the 1990s, Standard Chartered continued to restructure. It divested holdings in Europe, the United States, and Africa and made a series of job cuts. Unprofitable businesses were shut down and internal operations were streamlined. Management began a new strategy of focusing on consumer banking, along with corporate and institutional banking in Asia, Africa, and the Middle East.

Even as Standard Chartered pared back certain operations, it continued to delve into emerging markets. In 1990, it reentered the Vietnamese market, and then two years later began operating in Cambodia and Iran. Tanzania followed, along with Myanmar in 1995. By the mid-1990s, the company had offices in every country in the Asia Pacific region except for North Korea. While both the Asian and African markets proved tumultuous, the company's financial performance remained strong. In 1997, the bank secured pre-tax profits of £870 million.

The bank then began a series of acquisitions that would strengthen its position in the emerging markets industry. In 1998, it acquired a majority interest in Banco Exterior de Los Andes, which enabled the firm to offer its banking services as well as trade finance services in Columbia, Peru, and Venezuela. The following year, the global trade finance business of Union Bank of Switzerland was purchased. The bank also acquired a 75 percent stake in Thailand's Nakornthon Bank PLC. In the fall of 1999, Standard Chartered increased in presence in China by opening a Beijing branch office.

During 2000, the company made two of its largest acquisitions to date. The first was the $1.34 billion cash purchase of ANZ Grindlays Bank's South Asian and Middle Eastern banking operations. The deal added 116 branches to Standard Chartered growing arsenal. The next acquisition was that of Chase Manhattan Corp.'s Hong Kong consumer banking and credit card operations. The $1.32 billion purchase secured the bank's position as Hong Kong's largest credit card operator with a 25 percent market share. The company also sold its Chartered Trust unit to Lloyds TSB that year for £627 million.

Forbes magazine commented the bank's commitment to its Asian markets in an October 2000. The article claimed that while most financial institutions had been exiting the turbulent Asian scene, Standard Chartered "took a strikingly different road. Rather than hit the brakes, its chairman Sir Patrick Gillam, and its CEO, Rana Talwar, accelerated their plans to become the international bank most focused on Asia, and to a lesser degree, the world's other emerging markets." In fact, while pretax earnings fell by 42 percent during 1997 and 1999, revenues continued to grow despite the Asian economic collapse. If and when the Asian economy recovered, the bank stood to gain significant revenue and earnings.

By 2001, speculation arose that Standard Chartered may be courting takeover offers. Talwar agreed to consider these offers if the price was right; however, Gillam pushed to keep Standard Chartered intact. Shareholders agreed with Gillam's approach and in December of that year, Talwar--named CEO in 1998--was ousted from the company. Mervyn Davies was tapped to assume Talwar's position as his focus proved to be on the company's independence. Whether Standard Chartered would continue to lead the emerging markets banking industry alone or with a partner however, remained to be seen.