Emerging markets bank Standard Chartered plans to raise 1.8 billion pounds ($2.7 billion) from a rights issue to boost its capital base and give it flexibility to pursue acquisitions, it said on Monday.
The London-based lender said the economic picture had deteriorated this month and, although the bank was performing well, the outlook was unclear.
Peter Sands, chief executive, said investors were keen for banks to hold more capital during turbulent market conditions and there was merit in retaining an excess of cash.
It could also be used for deals, he said. "Having more capital will give us greater flexibility to take advantage of growth opportunities emerging from the turmoil, both organic and inorganic," he said.
"Many of our competitors are in disarray, lacking capital or liquidity or distracted by problems," Sands told reporters on a conference call.
By 0851 GMT its London-listed shares dipped 3.2 percent to 734 pence, compared with an issue price of 390 pence for the capital increase.
The dilution from the rights issue was added to by declines in the won currency in Korea — where Standard Chartered has exposure — and news of more structured credit losses, analysts said.
Standard Chartered's core tier 1 capital ratio — a key measure of financial strength — was 6.1 percent at the end of June, when it would have been 7.4 percent had the fundraising been included. Using the same comparison, Its tier 1 ratio would have been 9.8 percent instead of 8.5 percent.
The cash injection by the bank, which has dodged the massive losses from the credit crisis suffered by some of its competitors, came as analysts called for it to beef up its capital cushion to withstand potential losses in Asia and the Middle East.
CAPITAL CRUCIAL
Other big banks have raised capital this year and, as the industry braces for the impact of recession in many countries, the U.S. government agreed on Monday to bail out Citigroup while UK rival Barclays sought investor approval for a controversial fundraising.
Standard Chartered said its biggest shareholder, Singapore state investment company Temasek, planned to take up its rights and was also participating in the underwriting of the issue.
"If you compare Standard Chartered to a few of its peers, it doesn't really have toxic assets," said Kwok Chern-Yeh, a fund manager at Aberdeen Asset Management Asia, which owns Standard Chartered shares and manages about $37 billion in assets.
"But it has made quite a few acquisitions in the last year and a half so it is shoring up its capital."
The issue price of 390p per share is at a 48.7 percent discount to Friday's closing price. In Hong Kong, the bank's shares fell 6.4 percent to HK$88.00 each and were suspended shortly after the rights issue announcement.
Kwok said Standard Chartered's exposure to Pakistan, South Korea, Taiwan and India made it vulnerable to potential losses from bad debts.
"The concern is that they may have to take some provisions amidst this downturn in the economic cycle, which will hit their bottom line," he said.
The bank said in a statement that it had continued to perform strongly in the second half, and that it remained well capitalised and highly liquid and comfortably met capital requirements across all its geographies.
It said it had good income momentum, albeit slower than in the first half.
