Standard Chartered gets stress test pass from Bank of England
Despite its capital level falling below the minimum requirement, bank’s US$5.1 billion rights issue prevented the need to draw up a new capital plan
Shares in Standard Chartered and HSBC Holdings climbed when the market opened in London on Tuesday after both banks passed a test gauging the strengths of their capital bases in the event of a severe financial meltdown focused on China.
Standard Chartered showed the weakest performance of the seven banks tested by the Bank of England. The virtual crisis ate away 5.4 per cent of its common equity tier 1 capital (CET1), the core of the regulatory buffer that global banks have been required to build. That pushed its capital level below the minimum requirements of 6 per cent.
Still, the bank outperformed market expectations. Standard Chartered’s share price rose 1.76 per cent to 567 pence at 8.50am in London after the Bank of England said it would not require the bank to issue a new capital plan.
Given the capital raise, AT1 issuances and deleveraging, the bank’s capital concerns are in the past
“In light of Standard Chartered’s recent strategy review and the associated steps taken to strengthen its capital position, the [Prudential Regulation Authority] Board did not require Standard Chartered to submit a revised capital plan,” the Bank of England said in the test results.
In early November, Standard Chartered announced a US$5.1 billion rights issue after more than a year of speculation about the bank’s capital levels. The test, which was based on capital levels at the end of 2014, also did not factor in the US$2 billion in additional tier 1 [AT1] capital the bank raised in April.
Under the direction of new chief executive Bill Winters, the bank hopes to boost its CET1 ratio to 13 per cent from the 11.4 per cent at the end of September.
“Given the capital raise, AT1 issuances and deleveraging, the bank’s capital concerns are in the past,” Sanford C Bernstein analyst Chirantan Barua said in a note to investors.
