LONDON Jan 10 Standard Chartered Plc's
top 500 bankers gather in Singapore next week for their annual
strategy huddle with an unusual degree of uncertainty swirling
around the former stock market darling.
The departure of two top lieutenants and a surprise
reorganisation have deepened concern about the Asia-focused
lender's ability to restore its double-digit growth rates and
avoid tapping investors for more capital.
Chief Executive Peter Sands said this week a plan to merge
the bank's consumer and wholesale (or business lending) units
was about removing duplication and delivering better returns for
But he put no figure on how much StanChart would save from
the restructuring or quantify the potential revenue gain.
The lack of detail, coupled with the surprise announcement
that Richard Meddings, the group's well-respected finance
director and hitherto Sands' heir apparent, was leaving, along
with Steve Bertamini, head of consumer banking, helped send its
shares down to their lowest in a year and a half.
"I think the announcement raised more questions than it
answered," said James Chappell, analyst at Berenberg, which has
a "sell" rating on the bank. "I think investors are likely to be
concerned about what additional issues might be going on in the
After 10 years of record annual profits on the back of
roaring demand in Asia, the good times have come to a halt at
StanChart and Sands is under pressure to prove he can steer the
bank through a new era of slowing growth, tougher regulation and
a painful restructuring process in Korea.
The elevation of Mike Rees, head of the wholesale division,
to a new position of deputy CEO makes him the internal front
runner to eventually replace Sands, chief executive since 2006.
Last year, the bank struggled to give a consistent message
on its performance and prospects. In December, it warned it was
prepared for the first fall in profits in more than a decade.
After delivering compound annual income growth of 15 percent
between 2002 and 2012, StanChart now expects revenue growth in
the short term will be less than 10 percent. Its return on
equity target of at least 14 percent will also be missed.
Having coasted through the financial crisis and seen its
shares outperform European banks as a whole by 500
percent between 2002 and 2012, StanChart shares have since then
dropped 18 percent while the sector advanced 25 percent.
But its operating environment plays a big part in these
contrasting fortunes. "We're not talking about a business model
that's bust, we're talking about one that, relative to others,
has not shown massive improvement," said one top 20 investor.
"If you look at Lloyds or Royal Bank of Scotland, yes, the
environment in the UK is improving quite a lot, whereas in
Standard Chartered's case, Asia and the Middle East is weakening
a little bit, so it's a relative thing rather than an absolute
One insider said this week StanChart's reorganisation would
"re-energise and re-invigorate" the bank.
The question facing investors is whether the reshuffle goes
far enough. Most global banks have restructured in the past two
years to cut costs and narrow their focus, and moves by the
likes of HSBC, Barclays, UBS and
Citigroup have been deep and wide.
NOT AS SHARP
"A lot of things have arrived on their plate at the same
time, so I guess under the circumstances you probably need to
reduce your costs now. Have they been slow out of the block?
That is a question that will be asked," said Jim Stride, head of
UK equities at AXA Investment Managers.
"They've probably not been as sharp on curtailing the costs
as they ought to have been."
StanChart shares trade on a multiple of 1.13 times estimated
book value, a premium to 0.99 for the European sector.
HSBC is on 1.18 times and banks that have undergone big
restructurings are on a higher multiples - 1.52 times for UBS
and 1.43 for Lloyds.
StanChart's supporters say it does not need to go as far in
restructuring as it was in better shape than rivals.
Meanwhile questions linger about whether it needs to sell
shares to boost its capital defences.
Sands reiterated this week the bank did not need to raise
additional equity and was comfortable with its core Tier One
capital ratio, which it put at 11.4 percent at the half-year.
But the regulatory landscape is uncertain, particularly in
the UK where core capital requirements could be hiked to 12
percent as the central bank seeks to protect taxpayers against
future bank failures.
The danger for StanChart, and Sands, is that if earnings
disappoint or loan losses increase, it may be forced to raise
capital to meet regulatory targets.
"I think you need to see emerging markets improve before you
maybe see Standard Chartered get better, and that's completely
out of their hands," said the top 20 investor.