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Announcement:

Moody's affirms Standard Chartered's stable rating outlook on SIV restructure

10 Dec 2007
Moody's affirms Standard Chartered's stable rating outlook on SIV restructure

Sydney, December 10, 2007 -- Moody's Investors Service affirmed the A2 / Prime-1 / C+ ratings of Standard Chartered Bank and the A3 rating of Standard Chartered PLC, with a stable outlook, as the bank continues the restructuring of its Structured Investment Vehicle (SIV) Whistlejacket.

"Standard Chartered's strong capitalisation and liquidity provide a solid buffer that can withstand significant stress," explained Patrick Winsbury, a Moody's Senior Vice President. "Furthermore, the current restructuring initiatives for Whistlejacket have the potential to limit the bank's exposure to the SIV and highlight the good quality of the underlying assets".

The bank enjoys a strong funding and liquidity profile that has provided important protection during the recent turmoil in wholesale funding markets. It has a diverse deposit base that constituted 68% of total funding at 1H2007, and maintains a high level of readily liquifiable assets that exceed its wholesale borrowings. It has demonstrated its funding capacity during the recent credit market turmoil and remains a net lender to the interbank market.

Standard Chartered also has solid capital ratios, at 9.7% for Tier 1 and 15.6% for total capital. Moody's regards these levels as appropriate for the bank's emerging market exposures, but they also provide good coverage of its comparatively low direct exposure to troubled, subprime-related asset classes. In addition, the bank's revenue growth remains strong, due to its focus on emerging markets that have, to date, been little affected by subprime issues.

Standard Chartered is both the manager of Whistlejacket and an investor in the SIV. Due to lack of investor appetite for structured credit, in common with other SIVs, Whistlejacket has been unable to roll maturing debt. Standard Chartered has revealed that as part of its efforts to restructure Whistlejacket, the bank has participated in the purchase of a "vertical slice" of the SIV's assets, together with one other investor. Standard Chartered has indicated that it and other investors may purchase further such slices.

Under the vertical slice arrangement, an investor redeems its capital notes in the SIV, for which it receives an equivalent amount of the SIV's assets. The investor also purchases additional assets from the SIV (which had previously been funded by debt issued by the SIV) in proportion to the redeemed capital notes. The SIV assets received constitute a representative sample of the SIV's overall portfolio, such that each investor receives assets of similar average credit quality.

To date, Standard Chartered has redeemed USD140 million of its USD280 million investment in Whistlejacket capital notes, and purchased additional SIV assets of approximately USD1.6 billion. The net amount of SIV assets added to the bank's balance sheet was USD1.68 billion, after recording a negative fair value adjustment of USD46 million. The impact on the bank's Tier 1 ratio was less than 0.1% and the writedown constituted 1.1% of its pre-provision profit in the 12 months to June 2007.

The level of the mark-to-market writedown was comparatively low for current market conditions at 2.7%, highlighting the good quality of Whistlejacket's underlying assets (see below). It also illustrates why the vertical slice resolution mechanism may well be attractive to investors in this particular SIV. To the extent that Standard Chartered can find buyers for Whistlejacket's assets, this reduces the risk that the bank will fund them directly -- which it might otherwise be incented to do, in order to maintain its reputation with investors.

The bank has disclosed that Whistlejacket's assets are composed as follows:

40% financial institutions debt, with a minimum rating of single A, and 87% of which is rated Aa or higher.

7% Aaa monoline financial guarantors, over 50% MBIA and over 40% AMBAC

48% asset-backed securities (excluding collateralised debt obligations), with a minimum rating of single A, and 98% of which is rated Aa or higher.

5% CDOs with a low level of exposure to supbrime-related assets -- all of which are super senior tranches.

Standard Chartered intends to hold the SIV assets it has recently acquired to maturity, and since their credit risk is comparatively low (over 95% are rated a minimum of Aa), the loss implications for the bank are well contained.

Standard Chartered has indicated in its pre-close trading update that it expects strong profit growth and capital ratios to exceed target levels at FYE 2007. Consequently, the bank would be able to absorb the cost of acquiring a second vertical slice of Whistlejacket's assets -- which could be up to the same size as the first -- without materially affecting its financial strength.

Given that some of the other investors participating in a vertical slice may also be Standard Chartered customers, there is theoretically some potential that the bank could in effect fund their purchase of SIV assets via pre-existing credit facilities, and thus indirectly retain an economic exposure to them. This consideration is counterbalanced by the bank's arms-length allocation of credit limits to counterparties, the FSA's supervisory oversight and the good quality of the underlying assets.

Furthermore, Moody's stress-testing reveals that Standard Chartered's financial metrics would remain within its current financial strength rating band even if it took the full amount of the SIV's assets onto its balance sheet and recorded a 25% writedown on those assets. It is important to highlight that these stress-test assumptions do not reflect Moody's expected outcome, but rather serve as a reflection of the bank's sound financial fundamentals, which support the stable rating outlook.

Standard Chartered Bank is headquartered in London, United Kingdom. It reported assets of USD 296.8 billion at end June 2007.

Sydney
Patrick Winsbury
Senior Vice President
Financial Institutions Group
Moody's Investors Service Pty Ltd
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100

London
Elisabeth Rudman
VP - Senior Credit Officer
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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