Standard Chartered Loses Advantage Over Peers

Equity analysts have cut the economic moat for global bank Standard Chartered from narrow to none because of rising regulatory costs and slow economic growth in emerging markets

Erin Davis 4 June, 2015 | 3:40PM
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We are reducing our moat rating for Standard Chartered (STAN) to none from narrow. While we continue to think that its network across emerging markets is attractive to its international trade oriented clients, we think that increasing regional competition, rising regulatory costs, and slowing economic growth in its markets will make it difficult for Standard Chartered to significantly out earn its cost of equity.

Standard Chartered's regulatory costs, including the amount of capital it must hold, have increased significantly, which has made it more difficult for the bank to earn excess returns. Like all global banks, it faces higher operational compliance costs than it did before the crisis, and uniquely as it complies with its settlements of money laundering charges.

Capital costs have increased also: Standard Chartered's equity/assets ratio has increased from 5.1% in 2008 to 6.4% at the end of 2014, and we expect it to increase to just over 7% as the bank gives in to shareholder and regulatory demands that it hold more capital.

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About Author

Erin Davis  is a senior banking analyst for Morningstar.