StanChart's Smart Japan Move
So Standard Chartered has started its first brokerage business in Japan. Who knew that market held so much promise, considering everything that's gone down in India and Indonesia for the U.K. lender?
At first glance, it seems bizarre. StanChart is hardly a top-ranked player and has fallen further down the spectrum since exiting equities last year. It doesn't do much in bond underwriting overall in Asia either, Bloomberg-compiled league tables show, even as onshore issuance in China is booming.
Then there's the issue of competition. Nomura may have scaled back a lot of its overseas operations but it's still Japan's biggest brokerage by a mile. Morgan Stanley, too, is one to contend with, thanks in large part to its relationship with Mitsubishi UFJ. True, StanChart opened an office in Yokohama as far back as 1880 but it's been retrenching in recent times, closing its wealth-management business in 2012, for instance.
On the positive side, London-headquartered StanChart is one of the world's biggest emerging-markets lenders, with a significant presence in Africa, Southeast Asia and India. (Rival HSBC's main focus is China, although Hong Kong is a significant market for both banks.)
And its foray into broking in Japan comes as the nation's cash-rich insurers and domestic banks are struggling to boost returns amid a slide in stocks and negative bond yields. Nomura's retrenchment from many activities outside of Japan has also led to a hole that even a slimmed-down StanChart can play into, while garnering the higher fees Japanese clients pay.
StanChart also remains one of the region's top corporate banks, according to Greenwich Associates' research. It notes that even as Japanese lenders have moved to undercut others in areas such as trade finance, StanChart is still high on the go-to list for Asian multinationals seeking an overseas beachhead, and vice versa. It stands to reason then that, along with HSBC and Citigroup, StanChart is positioned nicely to win when flows eventually pick up.
Assisting companies in Asia outside Japan to sell bonds denominated in either dollars, euro or yen is another forte, with the lender ranking third this year, behind HSBC and Citigroup, data compiled by Bloomberg show. StanChart will also be able to underwrite fixed-income issuance in Japan, and that could help draw business from overseas investors looking for haven assets.
Furthermore, StanChart is strong in the Middle East, which has witnessed record note sales this year and has become a focus of investment bankers as Saudi Arabia prepares to IPO Aramco.
That CEO Bill Winters needs to find new sources of growth isn't in any doubt. The bank used to generate close to $19 billion in annual revenue in its heyday of 2012 and 2013, Bernstein analyst Chirantan Barua said in a note in May. Now, it seems even $15 billion is a tough target, according to Bloomberg consensus forecasts.
Scaling back to its safer roots as a primarily corporate and trade bank, while at the same time looking for some expansion opportunities, is a sensible idea. Tokyo may seem a strange choice but considering all those return-hungry customers, perhaps it's not as odd as it first seems.
To contact the author of this story:
Nisha Gopalan in Hong Kong at firstname.lastname@example.org
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