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StanChart board moves offer brief respite from Temasek pressure

An exterior view of the Standard Chartered headquarters is seen in London August 7, 2012. REUTERS/Olivia Harris
An exterior view of the Standard Chartered headquarters is seen in London August 7, 2012. REUTERS/Olivia Harris

By Saeed Azhar and Kelvin Soh

SINGAPORE/HONG KONG (Reuters) - Standard Chartered's Singapore investor is holding tight to its view that the board is too heavy with bank executives after the appointment of four independent directors.

According to a source familiar with the matter, the Singaporean state investment fund Temasek saw Standard Chartered's board appointments last week as "a step in the right direction", but added the board's make-up still falls short of what Temasek, the bank's biggest shareholder, would like to see.

Standard Chartered has produced 10 consecutive years of strong profits but the relationship with its main shareholder has come under strain with frequent market talk that Temasek is looking to offload its 6.4 billion pound ($10.4 billion) stake and as it pressures the bank over governance issues.

Temasek, which owns 18 percent of Asia-focused Standard Chartered, abstained from voting in May to re-elect all of the bank's executives apart from Chief Executive Peter Sands and several of the non-executive directors - sending a clear signal it disagreed with how the bank constructed its board.

The source familiar with Temasek's views cited the example of Singapore Telecommunications , which has a 10-member board which includes just a single executive from the company - the CEO. Temasek owns more than 50 percent of SingTel.

Six of Standard Chartered's 16 directors also hold executive positions at the bank, including CEO Peter Sands, Finance Director Richard Meddings and Asia Chief Executive Jaspal Bindra.

It is standard practice for UK companies to have one board comprising a mix of executives and non-executives.

"We firmly believe in the unitary model for board governance and it has served us extremely well," said Shaun Gamble, a spokesman for Standard Chartered in London.

A spokesman for Temasek declined to comment.

Standard Chartered on Friday said Lars Thunell and Margaret Ewing would join the board as non-executive directors next month and Om Prakash Bhatt and Louis Chi-Yan Cheung would join as non-executives in January.

RIGHT PRICE

Temasek's investment, dating back to 2006, was well-timed as the bank's emerging market focus and basic banking model allowed it to avoid the 2008 financial crisis.

Sources familiar with the issue say Temasek, like any shareholder, would be willing to sell at the right price, but may find it tough to find anyone willing to pay a premium for an already highly valued holding. Standard Chartered currently trades at 1.3 times the book value of its assets. Among its peers and rivals, HSBC trades at about 1.1 times, and JP Morgan at 0.9 times.

The Wall Street Journal on Thursday said Temasek is pushing for more independent directors at Standard Chartered, prompting the bank to respond with an emailed statement.

"As a long-term investor, we enjoy a close relationship with Temasek," bank spokeswoman Doris Fan said in the statement, noting that Temasek's abstention in the voting at the May annual meeting related to a "misinterpretation of UK corporate governance requirements."

The bank's governance was in the spotlight again in August when a New York state regulator accused the bank of improperly hiding money transactions with Iran. Standard Chartered agreed last month to pay $340 million to settle the allegations.

(Additional reporting by Avik Das in BANGALORE and Steve Slater in LONDON; Editing by Ian Geoghegan and Elaine Hardcastle)

(kelvin.soh@thomsonreuters.com +852-6113-0928 Reuters Messaging: kelvin.soh.reuters.com@reuters.net)

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