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Business review

The Group in 2008

Our priorities in 2009

Standard Chartered had another year of strong financial performance in 2008. The performance was particularly pleasing as it came in a year of global financial upheaval.

The Group has not escaped unscathed from the biggest financial crisis of our times, but a firm grip on the basic foundations of banking – liquidity, capital, risk and cost management – enabled it to escape the worst of the turmoil and stand out in the global financial landscape.

Last year’s performance can be summed up by the following achievements:

Strong earnings

The Right Partner - Mervyn Davies in Hong Kong

The Right Partner The Group has demonstrated it is the right partner for governments and regulators across our markets by working with them to address the short-term crisis and longer-term regulatory reform.

The Group’s income was driven by strong momentum in Wholesale Banking where income grew by 43 per cent. Organic growth was again the driver of income growth, delivering $2.3 billion out of the total $2.9 billion increase in income. Excluding the acquisition of American Express Bank (AEB) in 2008, Group income rose by 21 per cent, reflecting the strength of its underlying business.

Our disciplined management of expenses was demonstrated in the second half of 2008 as the Bank reduced costs in anticipation of the slowdown in Asia, Africa and the Middle East caused by the banking crisis in the West.

Overall, growth in expenses was less than income growth, at 22 per cent. Excluding AEB, expenses rose by 13 per cent, again significantly less than the underlying growth in income.

Firm foundations

Standard Chartered’s strong balance sheet is a key source of its competitive strength. The Bank’s capital and liquidity profile reflects the financial health of the Group.

In the current turmoil, the Bank has proven to be a ‘flight-to-quality’ institution as it continued to attract substantial deposit growth in both Wholesale Banking and Consumer Banking businesses. The Group’s deposit base grew 30 per cent through 2008.

The management’s focus on deposit growth and its disciplined deployment of the balance sheet resulted in the ratio of customer loans to customer deposits, the advances to deposits ratio, improving from 86 per cent at the end of 2007 to 75 per cent at the end of 2008. At the end of 2008, the ratio remained under 100 per cent in all of our major markets.

In a global economy starved of liquidity, Standard Chartered remained a net interbank lender in the money markets and continued to lend to its clients. Loans and advances to customers increased by $22 billion to $179 billion.

The Group’s lending portfolio is diversified over a wide range of products, industries and customer segments. The conservative nature of the Group’s balance sheet is further evidenced through the limited exposure to higher-risk asset classes and segments. Asset backed securities accounted for less than one per cent of Group assets. Exposures to commercial real estate, leveraged loans and illiquid assets are also extremely modest.

The Group’s capital position, already strong before the onset of the global financial crisis, continued to improve and remains well above its stated targets. Core Tier 1 capital, at 7.6 per cent, Tier 1 capital at 10.1 per cent and total capital at 15.6 per cent of risk weighted assets are well above our stated targets.

Positioning for growth

The Group’s strong franchise, built mainly through years of organic growth, has positioned it to take advantage of the next upturn in the global economy. The Bank supplemented this strength with selective acquisitions in 2008 which provided the businesses with specialist capabilities in key markets.

Employees at a special event welcoming American Express Bank to the Group

American Express Bank As the amalgamation of AEB progressed throughout the year, employees around the world held special events to welcome the new members to our team.

The acquisition of AEB, which was completed in February 2008, was one such addition which added both scale to the Private Bank as well as boosting the Group’s transaction banking capabilities. The Bank made good progress in integrating AEB, amalgamating businesses in 47 countries by the end of the year.

In terms of performance, AEB delivered $552 million of income during the ten months of ownership in 2008. The Group is confident that it will be able to realise cost synergies of over $130 million in 2009 while integration expenses are expected to fall significantly, resulting in a significant increase in profitability.

The Group’s other acquisitions in 2008 included a majority stake in UTI Securities, an Indian retail brokerage; Yeahreum Mutual Savings Bank in Korea; Asia Trust and Investment Corporation, a bank in Taiwan; Lehman Brothers’ Brazilian franchise; and JPMorgan Cazenove’s Asian brokerage operations, which completed in 2009.

These acquisitions were made in response to customers seeking specialised financial services in our markets. They help diversify the Group’s revenue-generating capabilities and position the Wholesale Banking and Consumer Banking businesses to acquire new customers and seek a bigger share of business from their best customers.

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Group operating income

$13.97bn

2007: $11.07bn

Group operating profit

$4.57bn

2007: $4.04bn