Standard Chartered Bank announces $3 billion rights issue

Standard Chartered Bank has gone ahead with raising capital to weather the economic downturn and take advantage of the opportunities available in current situation. StanChart is listed on London and Hong Kong stock exchanges. StanChart announced that it will raise £1.78bn through rights issue at 390 pence per share, huge discount to its current market price of 760 pence per share. Existing shareholders will have the option of subscribing 30 new shares for every 91 shares held. This step will raise its Tire-1 capital ratio to 7.4% from 6.1%. This is in line with the industry wide shift of Tire-1 capital ratio towards 8%.

Temasek Holdings Pte is currently the biggest shareholder in StanChart with owning about 19% of the company. If Temasek goes ahead with the rights it can increase its stake to 22%. But this will make StanChart lose the right of printing Hong Kong currency. According to Hong Kong Monetary Authority regulations no bank with more than 20% owned by foreign government can issue currency notes in Hong Kong.

Remarkably, StanChart has so far been relatively insulated from the subprime crisis because of its focus on emerging markets like India, Taiwan etc. But now the economic situation spreading, even the emerging economies are not insulated and it is good option to raise capital while you still can.

US' struggle to save financials continues with Citi

The US Treasury (UST) appears to have been haunted by Lehman Brothers woes. UST cannot see Citigroup falling down. It is such a big player in the financial system that its failure can jolt the already feeble banking system. According to an article on BBC news:

"If the bank were to collapse, it could have caused financial havoc around the globe, seizing up fragile lending markets and causing untold losses among institutions holding debt and financial products backed by the company. "

So here comes the biggy-big rescue package for the giant. Some crucial points in the package are:

• A pool of $306 billion assets identified and Citigroup will bear first $29 billion losses on it rest to be absorbed by UST , Federal Reserve (Fed) and Federal Deposit Insurance Corp. (FDIC).
• Treasury department will give $20 billion from the $700 billion package passed for rescuing the entire financial industry. This is under the Troubled Asset Relief Program (TARP).
  
• Govt will get $7 billion of preferred shares with 8% dividends.
  
• Dividends will be limited to $0.01 per share for next 3 years.
  
• 10 year warrants of $2.7 billion to FDIC and Treasury department at strike price of $10.61 per share.
• Citibank to help distressed homeowners.

The Citi's term sheet of agreement is available from Citigroup's website.

The impact of this package will be that Citigroup's capital adequacy will improve with additional $40 billion in capital benefits. This capital infusion will make the Citigroup's Tier-1 capital ratio at 14% well above the mandatory requirement. On the other hand this rescue has increased the burden on the US government and more than trillion dollars of tax-payers money is at stake. With more and more companies lined up for protection the $700 billion may fall well short. Automobile giants like GM and Ford are so close to bankcrupcy and they certainly require some capital infusion to keep them alive.

Despite the lucrative package, investors at Wall Street are still skeptical about the long term outcome of this. But one thing is sure that if this works out well in near future more of such packages will be seen making their way.

A survival question for Citibank

Citigroup is too big to fail, you must be kidding... Not anymore.

Amidst the fray of failing banks Citibank may be the biggest addition. From being the world's biggest bank about a year and a half ago, today Citibank has serious threats of solvency. This is reflected in its stock price which has plummeted from about $30 per share to about $4 per share. Citibank was under the speculators radar since Vikram Pandit had replaced Chuck as the leader. But with the bank losing Wachovia Corp. deal to Wells Fargo & Co., the negatives started outweighing. And with the continuing losses of billions of dollar every quarter, the stock price saw a sharp decline of about 60% in last week amid speculations of a possible takeover or merger.

Citibank is one of the biggest banks of the world and employs more than 350,000 people. It reduced its workforce by 11,000 in the latest quarter ending September 2008. It has a customer base of more than 200 million and operations in close to 140 countries. Citibank's total assets declined by $50 billion in this quarter, thats 13% decline to 2,050 billion dollars. The question is that with accumulated losses every quarter and a large amount of risky assets still in the bank's portfolio, isn't the future shaky for Citi?

Speculation is that US government is working on a plan to rescue the bank. It will be a tough task ahead for the government to bail out the giant (though not so giant anymore).