One of London’s biggest hedge funds has begun betting on further falls in the share price of Standard Chartered, even after the company’s stock hit a 30-year low.
It comes amid concerns about the future of the Asia-focused bank, which is set to announce its first loss in more than a decade.
Marshall Wace disclosed a short position in Standard Chartered this month equivalent to about 0.6 per cent of the bank’s shares, marking the beginning of a potential attack.
According to City sources, at least one leading hedge fund is considering joining Marshall Wace, which manages more than $20 billion, in short-selling Standard Chartered shares, which have lost a quarter of their value since the start of the year, hitting lows last seen in the mid-1990s.
Short-selling involves an investor temporarily borrowing another investor’s shares and selling the stock on in the hope of being able to buy it back later at a lower price, locking in a profit. Analysis of the latest figures published by the Financial Conduct Authority show that Standard Chartered is currently the only big bank whose shares are being short-sold.
Recent falls in the share price have wrought considerable pain on investors. Temasek, the biggest, has lost more than half the money it has put into the lender since it began building its stake nine years ago.
The Singapore wealth fund has spent £4.4 billion acquiring Standard Chartered shares, including £1.5 billion in support of three rights issues, the most recent of which was launched last year by Bill Winters, the new chief executive. Based on the bank’s present market valuation, Temasek’s 15.8 per cent holding is worth less than half the cost to the Singaporeans of acquiring the stake.
This does not take into account the dividends that the fund will have received over the period of its ownership, or that its share purchases are likely to have been conducted off-market and at discount to the prevailing price at the time.
Standard Chartered will publish its full-year results tomorrow and some City analysts forecast that the bank will report a loss of more than $600 million amid a downturn in its core Asian markets over fears of the outlook for China. Another serious hit on its finances are the costs of Mr Winters’ restructuring plans, which will drain about $3 billion over the next couple of years.
Added to this, the bank has the highest proportion of commodities-related lending of any big British lender, at just over 9 per cent of its outstanding loan book, according to UBS. This is more than double the level of HSBC, its closest peer, and more than seven times that of Barclays on a proportional basis.
The concerns have been reflected in the cost of insuring its debt against potential losses. Its credit default swaps, a form of insurance on bonds, have more than doubled in cost this year and are the most expensive of any UK lender, according to Datastream.
Mr Winters, a former JP Morgan co-chief executive, is well regarded in the market, though his presence at the helm has failed to arrest the decline in the share price since he joined last June. In December, Standard Chartered poached Simon Cooper from HSBC to run its corporate and institutional banking business, a hire that steadied some nerves about the bank.
SOURCE : Nana Otuo Acheampong