Standard Chartered Nears Deals to Sell Units
The Sales Mark a Change in the Bank's Fortunes
LONDON— Standard Chartered STAN.LN -1.03% PLC is nearing deals to sell roughly a half-dozen units in Europe, Asia and the Middle East, part of an effort to combat an emerging-markets slowdown and worries about the bank's financial health, according to people familiar with the deals.
Standard Chartered is in advanced talks to sell South Korea's Standard Chartered Savings Bank and Standard Chartered Capital, according to these people. The bank also is preparing to make an announcement soon about having sold its Lebanese retail bank, these people say. It isn't clear who the buyers for the South Korean or Lebanese units will be.
Other businesses on the block include Standard Chartered's Hong Kong consumer-finance outfit called PrimeCredit, its German consumer bank and its Swiss private bank, these people say.
The sales are the latest manifestation of an abrupt turn in fortunes for Standard Chartered. Until recently, the bank's emerging-markets focus helped it avoid the problems that have dogged many European banks and made it a darling of investors. But turbulence in many of Standard Chartered's markets has walloped its shares, which are down 31% over the past year due partly to concerns that the bank needs more capital to absorb potential losses.
The latest fall from grace is expected Wednesday: Standard Chartered is scheduled to report its 2013 results, which will mark the first time in a decade that its annual profit has grown by less than the prior year.
Of course, slowing profit growth is a problem that money-losing European banks would love to have. And the businesses that Standard Chartered is selling are mostly small. The South Korea units have a combined book value of around $145 million, but are expected to be sold at a discount, according to the people familiar with the deals. The Lebanese bank is worth roughly $20 million. Standard Chartered's market capitalization, by contrast, is more than GBP30 billion.
"The good news is that if management do want to build capital by sell-downs, hidden value exists," said Jason Napier, an analyst at Deutsche Bank. He calculates that Standard Chartered between 1999 and 2011 made nearly three dozen acquisitions, many of which are now worth more than their purchase prices.
But shrinking is something new for Standard Chartered. Last November, as the bank's profits sputtered and its share price tanked, Chief Executive Peter Sands pledged to sharpen the bank's focus and stop wasting capital. The bank also has been pruning employees; its workforce shrank to 87,000 employees from 89,000 during 2013.
Standard Chartered is "taking actions to adapt our strategy to the changing realities of the world in which we operate," Mr. Sands told analysts on Jan. 9. The plan, he said, is to "deploy and concentrate our scarce resources—capital, liquidity, investment capacity, management time—behind the key geographies and businesses that offer the most potential for profitable growth."
While it is headquartered in London, Standard Chartered generates 90% of its profit in Asia, the Middle East and Africa. It rode a wave of foreign money and cheap credit pouring into those regions in the 2000s, but slower economic growth, rising bad loans and higher costs of doing business all hit the bank last year. Some purchases made in brighter times have gone sour, and Standard Chartered warned in December that operating profit for the year would be less than 2012's $6.8 billion.
South Korea has been a particular headache for the bank, due at least in part to a government program allowing people to restructure their debts. The bank wrote down the value of its business there by $1 billion in the first half of last year, and in December said it expects to post a full-year operating loss in the country of up to $200 million.
Some analysts say the bank may need to sell new stock this year to maintain its capital position, which for years was considered one of the strongest in the industry. Mr. Sands has said that won't be necessary, and is betting the global economy will pick up and markets will be calmer this year.
However, Credit Suisse CSGN.VX -1.81% analysts estimate that even if profits hold steady this year, the bank's ratio of equity to assets—one measure of the bank's capital strength—will start to lag behind rivals.