There are some words Standard Chartered PLC Chief Executive Malcolm Williamson wishes he
hadn't uttered. It was March, 1993, and Williamson was trying to calm depositors' and investors' nerves after the British bank revealed that losses from a 1992 Bombay stock market scandal could hit $420 million. A confident Williamson consoled: "I have no reason to believe that the India situation was other than an isolated event."
He was wrong. Since then, Hong Kong regulators have found the bank responsible for various schemes to jack up the share prices of new issues it underwrote, as well as other securities-law violations. And on July 18, Williamson revealed that two senior officials of Mocatta Metals Corp., its gold and silver trading unit, had been suspended because of expense account irregularities in Malaysia and the Philippines. The bank is looking into charges that bribes were paid to government officials. The overall toll on Standard has been steep: In two years, 35 senior bankers, brokers, and traders have left the company.
Williamson is determined not to be burned again. A new top management team is tightening credit controls, requiring more frequent audits, and enforcing trading and lending limits. It's also combing through the books for old problems, even if that means uncovering more irregularities. Meanwhile, a new strategy will focus the bank more closely on its strong client base in the Asia Pacific region, while playing down the U.S. and Europe. If Williamson can restore the bank's battered image, analysts say Standard could emerge as an even bigger regional power.
OLD COLONIAL. Ironically, with its deep Asian roots, Standard is the envy of much of the international banking community. It is the largest foreign bank in China, with 15 branch offices. It's also the largest bank in Singapore and one of the largest in Malaysia. In Hong Kong, it's one of three issuers of bank notes and a major player in commercial banking, trade finance, and custodial and trustee services. The bulk of 1993 profits--$575 million out of $620 million--came from Hong Kong and the rest of the Asia Pacific region. As economies rapidly expand, and with banking licenses hard to come by, Standard's competitive advantage is substantial.
One of the bank's problems is its history. Standard has been operating in such far-flung places as Singapore, Hong Kong, and China since Queen Victoria established the bank 125 years ago to drum up trade between Britain and the colonies. As part of its colonial banking style, country managers acted autonomously, with only loose controls from headquarters. Local lending practices often prevailed over stricter Bank of England regulations back home.
As a result, headquarters often didn't see the extent of credit or market risk. Says one former official: "The tendency was to give local management as much room as they saw fit and sometimes turn a blind eye to local customs that would have raised eyebrows in London."
WILD WEST. That was fine until the 1990s, when newly deregulated markets, such as India, exploded. In Bombay, the bank was involved in massive dealing in a form of interbank IOU, backed by government bonds, that the London office says it didn't even know existed.
In a Wild West atmosphere, speculative trades in Bombay stocks were often made using these IOUs for financing. Standard ended up holding what it now believes is a portfolio of IOUs from issuers who can't make good on them. The IOUs may be the same ones used in fraudulent stock deals. While Standard pursues legal action to recover some of the lost funds, it's awaiting an Indian government decision whether to impose fines.
In the aftermath of the Bombay scandal, the bank's London masters pledged to set strict rules. In mid-1993, Williamson installed two trusted aides as his enforcers. Fellow Barclay's alumnus Peter Wood was named finance director, and former Citicorp Britain head John McFarlane took over a number of the bank's Asian operations. They set up regional hubs to monitor risk and ensure that new procedures were followed. The Singapore hub seems to be working. Williamson says the uncovering of irregularities in the Mocatta unit is a direct result of his orders that the Singapore operation turn over every rock.
As the region's scandals mount, securities regulators are getting tougher. Hong Kong's Securities & Futures Commission, for example, ended criticism that it's a toothless tiger when it lowered the boom on Standard Chartered. On June 28, the bank was suspended from the Hong Kong initial public offering market for nine months. Its sister merchant bank, meanwhile, is no longer exempt from regulatory oversight there.
Not that the bank didn't deserve to have its knuckles rapped: In the HK$75 million IPO for audio equipment maker Yanion International Holdings Ltd., the bank's brokerage arm provided the company with funds through shell companies in the British Virgin Islands. According to Securities & Futures Commission findings, Yanion used the funds to buy its own shares and support the price. Some 40% cf the float was propped up by Standard this way.
While the IPO ban is a setback, Jardine Fleming analyst Steven Li says it won't spill over into corporate lending because of Standard's strong client base and the hunger for financing. "It's a lender's market here. Any apprehension borrowers have is quickly overcome by commercial reality--the need for capital," says Li.
Some observers wonder, though, if Williamson has done enough to change Standard's culture and restore confidence in it in Asia. One regional banker says Standard already has lost business to Hong Kong rivals in some areas. Adds John Doyle, a banking analyst at Mees Pierson Securities Asia: "I expect these problems will have long-term repercussions on Standard globally, especially as they try to expand into China."
But investors seem convinced that Williamson has put the Asian fiascoes behind him. In London, Standard's shares traded at about $4.13, up from $3.60 a month ago. And on Aug. 10, the bank may unveil a 40% increase in
six-month profit, to $364 million, over that of 1993's first half, according to Robert Law, a Lehman Brothers Inc. analyst in London. If Williamson can keep the regulators happy, investors should eet a few more thrills.