Standard Chartered’s new boss Bill Winters has promised quick action after the troubled bank reported its first quarterly loss since the Asian financial crisis and announced a highly dilutive $5.1bn rights issue.
The emerging markets-focused bank undershot analysts’ consensus expectations of a $913m pre-tax profit and instead reported a $139m loss for the three months to the end of September. That compared with pre-tax profit of $1.5bn in the third quarter last year.
StanChart’s Hong Kong-listed shares were 2.5 per cent lower at HK$83 a share in mid-afternoon trade, having fallen more than 5 per cent to HK$79.9 soon after the announcement on Tuesday.
A 12 per cent year-on-year drop in revenues to $3.7bn was exacerbated by a doubling of impairment charges from the same period last year to $1.2bn, dragging the bank to its first quarterly loss since at least 1998.
The bank blamed the charges on “continued adverse trends in particular in India and commodities”.
StanChart’s UK-listed shares have halved in the past two years as investors feared it had lost its way just as the emerging markets its business is based upon are slowing.
“The business environment in our markets remains challenging and our recent performance is disappointing,” said Mr Winters, who joined as chief executive in May after Peter Sands, the bank’s long-time leader, stepped down amid shareholder dissatisfaction.
Tuesday’s update included details of a long-awaited strategic review including plans to tackle $100bn of risk-weighted assets that would either be restructured or reduced in the next three years.
Mr Winters described the plans as “aggressive and decisive”.
The strategy will include a shift to focusing on developing its wealth management and private banking businesses while scaling back its corporate and institutional side.
“It is not a fundamental shift but I think the impact will be fundamental,” Mr Winters said. “Our corporate and institutional business — and commercial to some extent — have been characterised by the most capital intensive approach one might take ... without being as focused on returns.”
Mr Winters said the bank had been too focused on revenue growth in the past and not worried enough about return equity as he revealed the most aggressive restructuring plan in the bank’s history.
The bank has beefed up its cost cutting programme from $1.8bn to $2.9bn over three years. It plans to make a gross reduction of 15,000 jobs in its workforce of 90,000 people, most of who are spread across Asia, the Middle East and Africa as well in as its London headquarters.
Revenues from corporate and institutional clients in the third quarter fell 18 per cent year-on-year to $2.1bn. The bank said its efforts to target only more profitable business and better manage existing assets led to “weak momentum”.
Roughly a third of revenues are retail-based, according to CLSA, while 57 per cent come from its corporate side.
The $100bn of risk-weighted assets under threat include non-strategic businesses that the bank wants to exit, as well assets now deemed too risky.
The rights issue will offer existing shareholders two shares for every seven held at 465p a share, a 34.8 per cent discount to Monday’s 713.6p close. The price represents a 29.4 per cent discount to the shares’ theoretical price following the dilution.
Temasek, Singapore’s state investment fund and the bank’s largest shareholder, plans to exercise its rights for its 15.8 per cent holding.
Standard Chartered said the rights issue would raise its core equity tier one ratio — a key measure of capital strength — to 13.1 per cent as measured by its June half-year books, from 11.5 per cent. The bank is targeting a ratio between 12 and 13 per cent.
JPMorgan Cazenove and Bank of America Merrill Lynch are underwriting the rights issue.