Fighting a war for talent won’t be cheap

WHEN Peter Sands addressed investors yesterday, he did so safe in the knowledge that the bank has notched up eight consecutive years of growth.

It is an accomplishment made all the more impressive because it was achieved despite the near implosion of the banking sector in 2008. The only dark spot in an otherwise robust set of results was costs, which grew by over $1bn or 13 per cent, compared to a 5.8 per cent rise in operating income.

Sands said the bank was now engaged in a “war for talent”. The demand for top flight bankers who can speak Cantonese or Mandarin (not to mention the languages of StanChart’s other markets ) is higher than ever, but the supply can’t keep up.

That partly explains why the cost to income ratio jumped from 51.3 per cent in 2009 to 55.9 per cent, although investment in new business is also partly responsible.

Management expects the ratio to stay flat in 2011 but, as the son of a naval officer, Sands will know that fighting a war is not cheap. We think that costs as a proportion of income will inevitably edge up further in 2011.

Take HSBC, in many ways one of StanChart’s closest rivals, which saw its expenses grow by a similar amount to take the cost to income ratio to 55 per cent in 2010. It expects costs to peak in 2011 before falling back to around 52 per cent of income by the end of 2012.

That doesn’t mean Sands should take out costs for the sake of it. Investors will have to accept that higher expenses in the medium are a price worth paying for growth. If StanChart wins the war, it will be more than worth it.