Muddy Water’s Fascination For Stanchart Bonds

My first thought on Muddy Waters‘ new fascination, Stanchart, was why the bonds and not the stock ?

Second slightly more libertine thought was, Muddy Waters locking horns with Temasek again ? Within a span of 6 months ?

Third thought, on the conspiracy front, perhaps Muddy Waters is allying with Temasek who is not all that pleased with Olam and Stanchart in the past.

Stanchart has come a long way, I would say. Back in the old days, folks in London would go, “Standard what bank ?”

Market capitalisation rising from USD 13 bio in 2001 to USD 58 bio in 2012, with 6 equity offerings in between. Compared to the rest of the banking giants whose market caps shrank, Stanchart has risen in the ranks of the banking world to be the 38th largest financial institution in the world (ahead of Deutsche, AIA, RBS, Morgan Stanley and Blackrock etc) and DBS is only number 70, OCBC 85th and UOB 115th.

Recently, Temasek abstained from the re-election vote of 4 exec directors again after last year’s boycott. It is been allegedly reported that Temasek is disapproving of the organisation of the board in addition to the money laundering charges last year and now, their drop in profits.

It would be easy to forgive them in the past, the new kid on the block and wonder child who needed time to develop. But things have changed and times are different.

So why did Muddy Waters choose the bonds ? Mainly the 5 year credit default swap, really according to the WSJ. Because I suspect they are in this for the long haul. 5 year credit default swaps cannot be short squeezed as easily like stock prices can and carry on till something blows.

Stanchart 5Y CDS

Check out the 5Y senior CDS of Stanchart, compared with the too big to fails. The green line has pretty much outperformed the big boys till now.

Stanchart has issued only 1 benchmark this year, a GBP 750 mio 25 year bond at 4.375%, issued at 99.65. The bond is trading at 102.80/103.40 now.

I am guessing that the Muddy Waters attack is a long term one, not going full frontal at the stock (or risk going head on with Temasek). A cautious and well planned strategy that will work out this time (unlike Olam) as the bank’s growth decelerates.

Not a major concern for the bond holders of Stanchart SGD papers.

STANDARD CHARTERED BANK 450MM A A2 A+ 5.25 10-Apr-23 CALLABLE  ACT/365 104.3856 4.138
STANDARD CHARTERED BANK 220MM A1 2.22 5-Jul-13  ACT/365 100.185 0.66
STANDARD CHARTERED BK HK 750MM A+ A1 AA- 4.15 27-Oct-21 CALLABLE  ACT/365 104.0679 2.706

Good luck !