Its been a rough year forStandard Chartereds(LSE: STAN) shareholders. Very rough. Year-to-date the banks shares have lost nearly half their value, excluding dividends.A deluge of bad newsanda rightsissue are just two of the many factors that have weighed on theshare price over the past 12 months.
But will the banks shares stage a recovery during 2016 or are they set to fall further?
Its hardto tell. Granted, some of Standards declines over the past year can be blamed on the banks rights issue. The group undertook a two-for-seven rights issue back in November and 3.3bn was raised by offering shares at 465p. That was a 38% discount to the prevailing market price when the issue was announced. However, there are still many factors that are likely to weigh on Standards shares going forward.
Capital problems
Worryingly, initial figures showed that Standard Chartereds capital level would have slipped below the required minimum of 6% in the Bank of Englands annual stress test. The testmodelled the impact of a Chinese-led economic crisis that caused a 100bn reduction in the banksprofits over five years, of which 40bn came from fines and other misconduct costs.
Still, Standard received the green light on its balance sheet from the BoE as the groups drastic restructuring and a $5.1bn rights issue should put it on track to address the shortfall.
The BoEs analysis can be trusted and it looks as if Standard has put its balance sheet issues behind it for the time being. So, with much oftheshare price fallthis year driven by concerns about the state of the balance sheet and with theissue behindit, declines should be limited. Or shouldthey?
Standard is highly exposed to thehigh-risk commodity markets and emerging Asian markets, neither of which have been having a good time recently.
Borrowing binge
All of Standards troubles over the past few years can be traced to rising levels ofbad debt, falling profit margins and weakening Asian currencies, three pressures that continue to weigh on companies operating in Asia.
Whats more, as the US Federal Reserve prepares to hike interest rates for the first time since the financial crisis, enoughCity analysts believe the situation in emerging economies is only going to get worse.
Many Asian companies took advantage of low-interest rates to go on a borrowing binge and alarge amount of the financing was done in dollars, not the home currency of the company doing the borrowing. As a result, with Asian economies slowing, interest rates ticking higher and the dollar becoming stronger, many companies are struggling to meet dollar-denominated borrowing costs.
The bottom line
Overall, its difficult to tell what Standards shares will do next year. On one hand, itsrights issue has gone a long way toalleviating concerns about the state of its balance sheet. On the other, a strong US dollar and higher interest rates are causing havoc in emerging markets, which is likely to be reflected in Standards earnings.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
