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Banking: StanChart shows King is wrong

The bank’s results reveal the benefits, and not the drawbacks, of mixing retail and wholesale banking.

When Bank of England Governor Mervyn King made his criticism of casino banking in a speech earlier this year he clearly didn’t have Standard Chartered in mind.

King was referring to the risky proprietary-driven activities of investment banks, which he wanted separated from safer, deposit-gathering-and-lending retail banking to lessen the threat of financial institutions that get too big to fail.

But as with other proposals put forward by officials and regulators to redraw the post-crisis banking landscape, King’s argument was too general, misguided and simplistic. Standard Chartered shows why.

The emerging markets specialist has had a better crisis than most other banks. Last year it delivered record pre-tax operating profits of $4.57 billion. For the first half of this year its profits hit $2.84 billion, up 10% year on year. An interim management statement released at the end of October said that the bank had continued to build on its record income and profits during the third quarter.

What’s most interesting about its results is that it’s the wholesale banking division – the casino bank, to use King’s terminology – that’s driving them. Last year, the wholesale bank – corporate lending, transaction banking, financial markets, asset and liability management, corporate finance and principal finance – accounted for 65% of the bank’s profits.

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