Standard Chartered seeks £3.3bn from shareholders
Bank posts first loss in years, and says it will cut 15,000 jobs and withdraw from riskier lending
Standard Chartered is asking shareholders to stump up £3.3bn while axing 15,000 jobs after reporting its first quarterly loss in 15 years.
The emerging markets-focused bank also warned it faced further potential penalties on top of the £415m fine imposed in 2012 by the US authorities for breaching sanctions against Iran.The Financial Conduct Authority (FCA) in the UK is conducting two investigations into the bank’s internal safeguards against financial crime.
As Standard Chartered asked investors to take up new shares through a rights issue, its new chief executive, Bill Winters, said the bank would restructure to focus on affluent customers, rather than big companies, in emerging markets such as China. It will also pull back from riskier lending to remove $100bn (£65bn) of assets – representing a third of the bank’s balance sheet. One analyst described the changes as “the most significant repositioning” of a bank he had ever seen.
Telling analysts that there were some good aspects to Standard Chartered but they were buried under “fertiliser”, Winters said: “This bank has a history of excellence. It does not have a recent history of excellence.”
Winters – a former JP Morgan investment banker – took over in May from Peter Sands, who had overseen rapid growth until 2012 when regulatory problems hit and profits began to fall.
The shares, which were trading at £19 five years ago, have plummeted in value and on Tuesday were the biggest fallers in the FTSE 100, closing almost 7% lower at 666p.
Until three years ago, the bank had enjoyed 10 consecutive years of rising profits, even through the damaging 2008 banking crisis. Winters is now focusing on returns to shareholders rather than revenue and winding back the less stringent approach to lending.
Sarah Wilson, chief executive of shareholder advisory group Manifest, said she would be quite surprised if investors did not raise the issue of any outstanding bonuses due to Sands. The former boss waived his bonus for 2014.
Winters immediately faced questions about the timing of the cash call, which comes just weeks before the Bank of England is to publish the results of its stress tests on the major banks, on 1 December. “The bank has not raised enough capital in our view. Today’s capital raise is the exact amount raised in 2010 – it was not enough then and is unlikely to be now,” said Joseph Dickerson, analyst at the investment bank Jefferies.
But major investors said they backed Winters. The rights issue is priced at 465p a share and gives investors two shares for every seven they already hold. The largest investor, Temasek – a Singaporean investment vehicle, which has 15.8% – will subscribe to the rights issue fully and help to underwrite the fundraising.
The bank’s second largest shareholder, Aberdeen Asset Management, is also backing the fundraising. Hugh Young, managing director of Aberdeen Asset Management Asia, said: “ The plan outlined seems sensible and it is clear where the bank now wishes to focus its business.”
Standard Chartered has been affected by the turmoil in the Chinese economy and the plunge in stock markets in August as well as a rise in bad debts at its Indian business. It has reduced its exposure to China by 15% over the first nine months of the year. It has also cut by 21% its exposure to commodities, where prices have fallen as Chinese economic growth has weakened. The bank is also trying to rectify problems in its Indonesian and Korean operations.
Winters has indicated that the bank has lent too readily in the past. Of the $100bn of assets being removed, $20bn are large loans to a handful of investors who are now deemed too risky for the bank.
The third-quarter loss was $139m (£90m) – thought to be the first loss at the bank since the Asian debt crisis in 1998 – and over a nine-month period profits dropped from $4.8bn to $1.6bn. As well as taking a tougher approach to bad debts, the bank pointed to a 44% rise in the cost of dealing with regulatory and legal issues to $690m.
At the half-year results in August, Winters halved the dividend. The bank will not pay a further dividend until 2016 to save $700m.
Stephen Andrews, analyst at investment bank UBS, said: “We believe this is one of the most significant repositionings of a large financial group we have seen. The aim is to reposition the group away from low return corporate banking towards higher return retail/wealth management businesses.”
There were no details on where the job cuts would fall within the 86,000-strong workforce, which is based largely in Asia and Africa. But the restructuring seeks to reduce costs by $2.9bn over four years. Winters intends to spend $3bn in the next three years on bolstering risk and compliance controls and pushing into faster growing business areas.
The bank has promised to replace its chairman, Sir John Peace, next year.
The bank warned investors participating in the rights issue that it could face further penalties from regulators. It said it was “subject to various regulatory reviews, requests for information and investigations in relation to a number of the markets in which it operates, including two inquiries by the FCA concerning the group’s financial crime controls and the matter in the US where the authorities continue to investigate the group’s sanctions compliance in the period after 2007, as well as the completeness of its disclosures to the authorities at the time of the 2012 settlement”.
• This article was amended on 4 November 2015 to correct a description of Temasek.
Source: The Guaridan – Standard Chartered seeks £3.3bn from shareholders
