Standard Chartered Fair Value Downgraded to 1,500p

Standard Chartered's valuable reputation has been tainted by Iranian money-laundering allegations

Holly Cook 8 August, 2012 | 10:06AM

Charges that Standard Chartered (STAN) conspired with the Iranian government to launder money through New York are likely to result in a hefty fine and a stain on the firm’s previously stellar reputation.

“However, we think these charges are unlikely to result in the loss of its banking licence, nor will they result in devastating damage to its business,” writes Morningstar senior banking analyst, Erin Davis, in her research report.

Davis on Tuesday lowered her fair value estimate for Standard Chartered by 300p to 1,500p per share. One third of this downgrade (100p) is related to expectations of a large fine and lower revenue related to the money laundering charges, while the remainder (200p) is a result of an expected increase in the cost of equity to 12%, in line with other global banks. The new fair value estimate is 1.3x book value and 1.6x tangible book value.

“Standard Chartered has been one of our favourite banks because it is one of the few global banks that wasn't deeply damaged by the financial crisis, and most of its advantages remain intact, in our opinion,” Davis adds.

Despite the latest debacle, Davis continues to see much to like about Standard Chartered, not least it strategic focus and lean operations. The latter, which consume only about 55% of revenue, help keep shareholder returns high, Davis says. But perhaps more important is the firm’s financial strength. “The bank's huge deposit base and low loan/deposit ratio keep liquidity worries at bay, while its top-of-the class capital cushion means unexpected losses are unlikely to cause a crisis,” Davis concludes.

Click here to read the full research report, including analysis of Standard Chartered management and financial health. (Morningstar Research is available to Premium subscribers. Not a Premium member? Get instant access when you take a free 14-day trial.)

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About Author Holly Cook

Holly Cook  is Managing Editor of