Asia-focused bank Standard Chartered unveiled a surprise 1 billion pound ($1.7 billion) fundraising on Tuesday as it beat expectations with a record mid-year pretax profit.
Chief Executive Peter Sands said the share placing was absolutely not to build a warchest for a big acquisition, but was to give the bank firepower to take advantage of opportunities as Asian economies and customers recovered.
It's about staying ahead of the game, Sands said on a conference call. Given that we see Asia having a shorter and shallower recession than other parts of the world, our clients are seeing a light at the end of the tunnel, and we want to anticipate that and support them.
He said the bank was in talks about small acquisitions in China and India, which would cost low hundreds of millions of dollars. Standard Chartered is in talks to buy Royal Bank of Scotland's assets there, which could cost about $200 million, a person familiar with the matter has previously told Reuters.
The bank sold 75 million shares at 13.60 pounds apiece, a 5.3 percent discount to Monday's close. The quickfire placing -- the biggest in London this year, and the seventh biggest ever -- was handled by JPMorgan Cazenove and UBS.
The shares closed down 7.5 percent at 13.28 pounds, as the placing sucked out investor demand and outweighed its positive earnings and was about 3 percent dilutive for earnings per share, analysts said.
Standard Chartered reported a mid-year pretax profit to June 30 of $2.84 billion, up from $2.59 billion a year ago and beating a forecast of $2.49 billion from a Reuters poll of five analysts.
Other European banks have reported improving results for the period, including HSBC and Barclays in Britain and Switzerland's Credit Suisse, but Standard Chartered has weathered the financial crisis better than most thanks to its focus on Asia and strong capital and liquidity.
Unlike many rivals, it did not rely on taxpayer rescue cash, but instead raised $2.7 billion in a rights issue last year.
Wholesale banking fueled the first-half profit rise with a 36 percent jump in operating profit to $2.25 billion.
Consumer banking is faring less well as Asian economies have weakened, bad debts have risen and its business in Korea has struggled. The unit's operating profit tumbled 57 percent to $348 million, but Sands said he was confident the business was through the worst and was being successfully reshaped.
The bank's charge for bad loans more than doubled to $1.1 billion as both wholesale and consumer banking losses rose.
Core tier 1 capital, a key measure of balance sheet strength, will rise to 8.4 percent after the share placing, up from 7.6 percent at the end of June and 6.1 percent a year ago. The bank may hold the ratio above 8 percent, Sands said.
(Additional reporting by Daisy Ku, Myles Neligan and Victoria Howley in London and Alison Leung and Clare Jim in Hong Kong; editing by Clara Ferreira-Marques/Jason Neely)