There’s no fourth floor at the new London office of Standard Chartered. The number is unlucky in parts of Asia and, given the bank’s focus on emerging markets, the architects did not want to run the risk of jinxing the building or the bank. With the financial services industry lurching from one crisis to the next, perhaps a little superstition can be allowed. But in his office on the building’s ninth — or should that be eighth? — floor, group finance director Richard Meddings insists that in this industry, “you have to make your own luck.” Standard Chartered seems to have done that. Thanks to its focus on Asia, Africa and the Middle East, it avoided any fallout from the subprime crisis and has posted rising results, while its global peers around the world watch their business grind to a halt.
That’s not to suggest that Standard Chartered has stood aside while the banking crisis gathered pace. In mid-October, a UK newspaper revealed that Meddings and Standard Chartered CEO (and former CFO) Peter Sands were instrumental in helping the UK government structure a recapitalisation plan for domestic banks that was replicated across Europe and the US. Standard Chartered won’t benefit from the plan directly — Meddings maintains that it is well-capitalised and doesn’t plan to accept funds from the government — but rather he believes the rescue package is crucial to boost confidence in the UK’s banking system.
Standard Chartered must now be concerned about a possible slowdown in Asian markets; Meddings spoke with CFO Europe the day after Japan’s Nikkei index saw its biggest one-day fall since 1987. The finance chief argued that slowing growth in its target markets is still a better environment in which to operate than the West, where the possibility of a recession looms large. But at a time when today’s assumptions are proved wrong tomorrow, it’s still a major concern.
You’ve escaped the subprime fallout relatively unscathed. Was that genuine foresight?
We’ve been fortunate to an extent. We have no direct subprime exposure and we have very low exposure to the asset categories that are causing such mayhem at western banks, like leveraged loans, level-three assets and commercial real estate. We’re clear about which customer segments we serve and we understand the products customers want. For us to stray over to the West and the world of subprime would have been a remarkable lapse in strategy, and in these times it’s more important than ever to stick with your strategy.
What risk management lessons have you learned from events over the past year?
In a world that has suddenly become less benign, risks morph quickly, so you need a coherent and rounded view of any issue and how it might impact the business. A liquidity risk is instantly a credit risk. An operational-fitness risk can turn to a credit risk. A credit risk can cause a reputational risk. The financial system has been shaken and shocked to its core. The phrase Peter Sands uses here is “loose rivets” — when the machine is shaken around like this, the areas that are not reinforced will pop. You need systems that alert you to those areas quickly and then you need to understand how material the issue might be.