Broker snap: Mild dilution for StanChart's return profile

14th Oct 2010 12:38

Nomura expects bullish movement from Standard Chartered despite stricter capital requirements for banks.Standard Chartered yesterday announced a 1-for-8 rights issue to raise about $5.1bn, around 13% of its market capital, to prepare the bank for the Basle III requirements.The company intends to issue the shares at 1280p on the basis of 1 new share for every 8 held. The broker says this reduces return on equity by 1.5% in the near term and decreases earnings per share in 2011 by $0.11. The rights call accompanied a trading update which said income in the third quarter was above the first half run rate.Analyst Raul Sinha commented: "We think that the group remains well positioned to benefit from organic growth in the Far East and that the rights issue does not significantly dilute the group's return profile.""The group indicates that this is a pre-emptive measure to preserve organic growth in an environment where its lead regulators might accelerate the implementation of higher capital requirements."The broker confirms its 'buy' rating with a target price of 1920p.