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Shares of Standard Chartered plummeted on Tuesday, as the Asia-focused bank posted its first quarterly loss in a decade-and-a-half, announced a £3.3 billion fully-underwritten rights issue and unveiled plans to overhaul its structure and restore profitability, including the loss of some 15,000 jobs globally.
Shares were down over 8 per cent in London morning trade on Tuesday, after the bank posted worse-than-expected results for the third quarter ending in September — a loss of $139 million, against a pre-tax profit of $1.5 billion in the same period a year ago.
“The business environment in our markets remains challenging and our recent performance is disappointing,” said CEO Bill Winters, the former JP Morgan investment banker who replaced long-running CEO Peter Sands earlier this year.
Since taking over, Winters has pledged a fundamental overhaul of the bank, including a review of all businesses, and a reduction in management layers. In October he announced that around a quarter of the top 4,000 most senior positions could be eliminated. Now the bank estimates that 15,000 positions will go globally — a sizable chunk of its 90,000 workforce.
Further cost-cutting Now the bank is looking at around $2.9 billion in further cost-cutting before 2018. It will sell or reposition around $100 billion of risk-weighted assets. There will also be no end of year dividend this year.
These moves, along with the capital raising, will raise the bank’s Tier 1 core ratio (a closely watched measure of its capital position) to around 13.1 per cent from 11.5 per cent — just above its target of 12-13 per cent.
The capital raising will go towards this, as well as the $4 billion in restructuring and business transformation costs. Winters said the moves will transform Standard Chartered into a “lean, focused, well capitalised and profitable bank.”
Alongside falling revenues, in certain areas such as commodities, the bank was hit by a $1.2 billion impairment charge that it attributed to adverse conditions in India and commodities markets. It also pointed to the slowdown in China, and that it had cut its exposure to the country to 15 per cent since the start of the year.
Response to its plans remains cautious. “While the plan is a strategic necessity to improve returns, there remains uncertainty about how much revenue will be lost as a result of the exiting of risk weighted assets and how long the challenging current trading environment will persist,” wrote analysts at Morgan Stanley in a note to clients, who also expressed concerns about the strategy to focus on the retail banking market.
“We are also somewhat cautious on the ability of StanChart to take share in retail in core cities given a tough competitive backdrop.”
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