Stanchart Board moves offer brief respite from Temasek pressure

Monday, 8 October 2012 00:00 - - {{hitsCtrl.values.hits}}

SINGAPORE/HONG KONG, (Reuters): Standard Chartered’s move to name four independent directors last week was welcome news for its biggest shareholder, but Singapore sovereign investor Temasek is holding tight to its view that the board is still too heavy with bank executives.

According to a source familiar with the matter, Temasek saw the bank’s board appointments last week as “a step in the right direction”, but added the board’s make-up still falls short of what Temasek would like to see.

The source cited the example of Singapore Telecommunications, which has a 10-member board which includes just a single executive – the company’s CEO. Temasek owns more than 50% of SingTel.

Six of Standard Chartered’s 16 directors hold executive positions at the bank, including CEO Peter Sands, Finance Director Richard Meddings and Asia Chief Executive Jaspal Bindra.

Temasek, which owns 18% of Asia-focused Standard Chartered, has highlighted the issue of board affiliation before, and in May abstained from voting to re-elect several of the bank’s non-executive directors – sending a clear signal it disagreed with how the bank constructed its board. Most UK company boards have a mix of executives and non-executives.

Standard Chartered said on Friday Lars Thunell and Margaret Ewing would join the board as non-executive directors next month and Om Prakash Bhatt and Louis Chi-Yan Cheung would join as non-executives in January. It said it was the “first phase” of its board succession planning that started a year ago.

Since investing in Standard Chartered in 2006, Temasek has done well with its stake as the bank’s emerging market focus and basic banking model allowed it to steer clear of the 2008 financial crisis. The bank has produced 10 consecutive years of strong profits. But the relationship faces two stress points.

One is the governance issue, and the other is the frequent market talk that Temasek is looking to offload its stake. The Financial Times said last month that Temasek had sounded out possible buyers for its 6.4 billion pound ($10.4 billion) holding.

Sources familiar with the issue say Temasek, like any shareholder, would be willing to sell at the right price, but may find it tough to find anyone willing to pay a premium for an already highly valued holding. Standard Chartered currently trades at 1.3 times its book value. Among its peers and rivals, HSBC trades at about 1.1 times, and JP Morgan at 0.9 times.

The Wall Street Journal on Thursday said Temasek is pushing for more independent directors at Standard Chartered, prompting the bank to respond with an emailed statement.

“As a long-term investor, we enjoy a close relationship with Temasek,” bank spokeswoman Doris Fan said in the statement, noting that Temasek’s abstention in the voting at the May annual meeting related to a “misinterpretation of UK corporate governance requirements.”

The bank’s governance was in the spotlight again in August when a New York state regulator accused the bank of improperly hiding money transactions with Iran. Standard Chartered agreed last month to pay $340 million to settle the allegations.