Breakingviews - Capital Calls: StanChart investors see long winter

A woman walks past Standard Chartered logo at its headquarters in Hong Kong, China August 4, 2016.

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COLD WINTER. Investors in Standard Chartered mistrust even a meagre profitability target. Chief Executive Bill Winters on Thursday said he expected the Asia-focused lender to earn a minimum 7% return on tangible equity in 2023. Assuming a 10% cost of equity and using the median Refinitiv estimate for tangible book value, that would merit a share price of 670 pence in 2023. Discounted at 10%, the shares should be worth 554 pence in today’s money, even before factoring in the value of share buybacks and dividends between now and then. Yet StanChart shares dropped 5% on Thursday to trade at less than 5 pounds.

The implication is that shareholders don’t buy Winters’ promises. High expenses hardly help. The median analyst forecast implies the bank will have a cost-income ratio of 65% in 2023, well above rivals Citigroup and HSBC, with 60% and 61% respectively. To get investors on side, Winters might have to wield a bigger axe. (By Liam Proud)


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