Blain’s Morning Porridge – The Property Chronicle
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Blain’s Morning Porridge

The Macro View

Big might be beautiful… but not always”

In the headlines this morning…

Lots of stuff for today… Kashmir, Brexit Shenanigans, and where next on trade negotiations… but let’s wait and see what develops.

Yesterday, I was reminded of the punchline – “Look upon my works ye mighty and despair”.

What’s been the big corporate story of 2019? Perhaps it’s how close GE got to the edge. Once America’s premier AAA name, new CEO Larry Culp is hastily divesting parts of the broken conglomerate – raising $21 bln by selling its Biopharma unit and $3 bln dumping its loco business this week. It gives GE some flexibility and time to evolve into a new niche.. whatever that turns out to be. How the mighty are fallen.. Ozymandias indeed..

Instead of writing the porridge, I found myself blathering about Standard Chartered Bank’s rather underwhelming results and lacklustre new “strategic plan”. I don’t buy it. It promises “Jam Tomorrow”, but I doubt there is any real prospect it will ever be delivered. STAN and HSBC both suffered from Asian weakness at the end of last year. Both proudly point to the legacy of their Asian strength (where HSBC make 90% of their profit), but are reticent about the enormous challenges they face as Asia evolves.

My thesis is simple: I suspect the “British Banks in Asia” bubble has burst, (probably a long time ago), and these names just don’t realise it yet. 

The conventional wisdom is STAN will do well because of its’ mastery of EM and Asian markets, while HSBC is now so big, dominant, and SIFI it will always win through. Although a global slowdown might have short-term negative effects on both, long-term they are poised to do well from diversification – when Asia is suffering a slowdown, growth slows to 5%! compared to a European “boom” when growth rises over 1%! What’s not to like? Asia is where the money is, and the oriental economies will soon surpass the broken occident.

If so, why are STAN and HSBC stock prices declining? Analysts ask complex and detailed questions about Net Interest Margins, tax and free capital, but what I read is the market pricing two tired institutions approaching the end of their natural cycle. Just like GE!

Shock horror! Its heresy to question the Asian money-tree credentials of Britain’s ”finest” banks? Wake up and smell the Chai!

The Macro View

About Bill Blain

Bill Blain

Bill Blain is Strategist for Shard Capital, a leading investment firm. Bill is a well known broadcaster and commentator, with over 30-years experience working for leading investment banks and brokerages at senior levels. He's been closely involved in the growth and development of the global fixed income markets, and pioneered complex financial products including capital, asset-backed securities and private placements. Increasingly, he's involved in the Real and Alternative Assets sector seeking to explain their complexity, how to generate decorrelated returns, and create liquidity in non-listed assets. Bill is a passionate sailor, talentless painter, plays guitar badly, is learning the bagpipes, and built a train-set in his attic.

Articles by Bill Blain

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