Investor piles on woes for Standard Chartered as shares fall

Muddy Waters’ founder Carson Block told a conference in Las Vegas last week he had bet against Standard Chartered debt because the market is underestimating the risk that is in the bank’s loan book, a spokesman for the short seller said.

Mr Block, whose company says it analyses the true worth of Chinese companies, argued that while Standard Chartered is diversified across emerging markets, a slowdown in China will lead to “considerable stress” at the lender.

He was buying five-year credit default swaps (CDS) for the bank, which is insurance against a default and yields a profit for buyers on any rise, the spokesman added.

Standard Chartered’s five-year CDS jumped almost 13 per cent to 103.75 basis points on Monday, according to Markit.

That means it costs $103,750 to insure $10m of debt, less than for most other banks. But the price has widened from 84.5 points a week ago and was the biggest riser of the iTraxx Main and Senior Financials indices constituents on Monday.

Standard Chartered shares fell 3.9 per cent to 1,522p by yesterday lunchtime.

“The comments have added to the momentum that has built up post the trading update,” said Gary Greenwood, analyst at Shore Capital. The shares have lost 10 per cent since the bank warned on Wednesday it could miss this year’s revenue target after a drop in first quarter operating profit.

It said losses from bad loans were up on the year, driven by an increase in its consumer bank, notably in Korea. But it said bad debts in the wholesale bank remained low and it still expected to meet analysts’ profit forecasts for 2013.

Standard Chartered declined to comment on Block’s comments.