In terms of portfolio activity, we established one new position during the quarter in all four of our Funds: Standard Chartered Bank (LSE:STAN), a large UK-based global bank with over 1,700 branches in 70 different markets around the globe. While Standard Chartered is domiciled in the UK, it is anything but a British bank. Founded in 1969 through the merger of Standard Bank of British South Africa and Chartered Bank of India, Australia and China, it is a bank with the bulk of its operating income derived from wholesale activities such as corporate finance, trade finance, foreign exchange, cash management, and custody services in markets such as Asia, the Middle East, and Africa. They also have a sizeable and conservative consumer business with a mortgage portfolio that is well secured by a loan-to-value ratio on its mortgages of less than 50%. Furthermore, it is a deposit financed bank that is not dependant on volatile, short term financing, as evidenced by a loan-to-deposit ratio of approximately 76%. The bank was considered a growth bank in the 2000s, somewhat immune to the problems of Western banks. It rode a wave of Asian growth and routinely traded at price/earnings ratios of 15 to 20 times earnings. Its fortunes began to change in 2011, as economic growth began to slow in a number of its most important markets. Some markets like South Korea have posed even bigger challenges, as new regulation impacted the growth prospects and the profitability of virtually all banks doing business in its jurisdiction. These factors, together with what we consider to be misplaced concerns about its capital position under Basel III and a recent management shakeup, have led its stock price to a fall from grace. This allowed us an opportunity to purchase our initial shares at approximately 9.5 times estimated 2014 earnings, 1.2 times stated book value, and what we believe to be a secure dividend yield today of over 4%. Standard's management still considers the bank to be a growth bank; however, it acknowledges that near-term growth will be lower than that enjoyed in the 2000s. We believe that a conservatively financed global bank that services many of the fastest growing parts of the world where middle classes are on the rise over the longer term and that is priced in the stock market at a significant discount to what we believe is a conservative estimate of its intrinsic value is worth a diversified bet in our Funds' portfolios.
From Tweedy Browne (Trades, Portfolio)'s first quarter 2014 letter to investors.
