Thursday, February 26, 2015


The banks.  Standard Chartered, the British bank that was created with the merger of the Standard Bank of South Africa and the Chartered Bank based in India, has fallen upon hard times.  It was said of the two institutions that the Standard guys thought they were gentlemen and the Chartered guys thought they were bankers so the merger should have been a roaring success.  And you know what?  For a long time it was.

Stan Chart did a few things really, really well.  They knew the markets in which they were located.  They knew trade finance.  They knew local corporates.  They had really good retail bankers...I mean they even issued currency in Hong Kong along with The Bank.  They may a ton doing what was known in the trade as "exotics"--currencies like the Baht, or Sing Dollar or Malaysian Rupee and they were in the place everybody wanted to be in...the developing nations of Asia...until nobody wanted to be there any more.  They rode out the 2007 crash like a surfer on a board to the point where they went from everybody's acquiree to the possible savior for some big, troubled institutions.  And then the world turned around.

One thing Stan Chart was not was sophisticated.  What they did they did really well but like so many other institutions what they didn't do well was the thing that jumped up and bit them.  They ran a stock business in Hong Kong along with a small capital markets business.  When Hong Kong was the Wild West that was one thing but when the big boys moved in what was little more than a bucket shop hadn't a chance.  Being one of the outlets to the west for China was super; then suddenly China became the West.  With a great deal of the attitude of its Standard Bank forebearers still ingrained, these  were good bankers but hardly "gents" as the City would call them trying to operate in a world where one had to at least appear to be a Gent and where you certainly had to know the thugs in the regulatory business masquerading as "Gents."  They never did.

Things haven't been going well for the past few years for Stan Chart but then again, it hasn't been a great time for banks.  But, as we have seen, one can overcome credit issues and management issues.  But you have to be able to work with the people running things nowadays or else you can get yourself in serious trouble.  That they found hard to do, and the one, overriding, horrible mistake that they made was to make public what the views that the bank had harbored for years; they really don't like the United States as a regulatory venue and resented being forced to be here because there was no alternative to the business in which they found themselves.  If you are going to engage in world trade, necessitating correspondent banking relationships, you have to have a clearing ability in the currency of trade, the U.S. Dollar.  As the great Liverpool striker Ian Rush once described his role, "You gotta be there."  They were and they didn't like it.

As a British institution, Stan Chart could go places off limits to U.S. banks; like Iran.  And so it came to pass that they got caught fiddling with the very strict regulations regarding dealing with Iran and worst yet, tried to cover it up.  Worst of all they got caught and to conclude the catastrophe, an Executive Director of the institution was quoted as remarking, "Who the hell is the U.S. to tell us...we can't deal with Iran?"  That thought may be deeply held in your heart but it must never reach your lips.  An action that might have cost them simply a lot of money in fines suddenly became an action that would be ingrained in the minds of regulators until death did it part.  This team of management would receive no breaks nor the benefit of any doubt.  They were dead men walking as the business of the institution went further south no doubt because of the overall economic climate in their locus but in addition,  as a result of clients simply moving away from what was obviously an institution not in good favor.

Today, the inevitable occurred with the announced  resignation of the CEO Peter Sands and his replacement with Bill Winters, the former head of investment banking for J.P. Morgan now running an asset management fund in London.  His reputation is one of a very, very smart, tough, skilled manager long thought to be the next CEO of Morgan until his vision clashed with that of Jaime Diamond.  Exit Winters.

And so I come to my question of the day.  Peter Sands, despite being a former diplomat, couldn't deal with the regulatory concerns facing his institution.  Bill Winters' reportedly loved by regulators, vision that clashed, was that commercial/retail banks didn't work with investment banks.  Take a guess at what Winters dreamed of J.P. Morgan.  So why do you appoint as head of a commercial/retail bank whose business is Emerging Markets a guy who doesn't like commercial/retail and apparently doesn't know a lot about emerging markets, especially Asia, where---can we talk--neither did J.P.Morgan.  OK he's smart and I wish him well, but boy, is this one going to be under a microscope.  Is that is what is needed?  Then again, from the standpoint of providing copy,  YES!  Go get 'em, Bill.

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