Temasek Holding (Pvt.) Ltd is starting to call the shots at Standard Chartered Bank (StanChart). If the Singaporean sovereign wealth fund ups its stake in the UK-based emerging markets bank to 20% from its current 19%, StanChart could lose its licence to issue notes in Hong Kong. The bank is powerless to prevent its largest shareholder embarrassing it in its largest market.
Hong Kong does not want its note-issuing banks (NIBs) under the influence of foreign governments. In July, the Hong Kong Monetary Authority (HKMA) ruled its NIBs should not have “close associations with any foreign government or foreign government controlled entities”—with “close” constituting the control of one-fifth or more of the shareholders’ votes. As far as StanChart’s profits are concerned, losing the licence to print money would be almost irrelevant. Note-issuing isn’t particularly profitable. Yet, StanChart enjoys the prestige that comes from a licence it has held from over 130 years, and which puts its name on a third of the country’s bank notes.
Recent rhetoric from HKMA suggests its new policy isn’t hard and fast. Earlier in February, it indicated it would examine violations on a case-by-case basis. For StanChart, that means HKMA would look at Temasek’s background and intentions towards the bank before taking a call. Most likely, Temasek will be able to break the 20% threshold without StanChart losing its NIB status. Temasek may have no intention of taking over StanChart, yet by placing its financial interests above the bank’s wishes and creating a headache for the lender, the sovereign fund changes the dynamics of a mutually supportive relationship. The situation proves that Temasek doesn’t need a board seat to call the shots. For StanChart that should sound alarm bells.