Standard Chartered is asking its investors to stump up £3.3bn after the bank reported its first quarterly loss in 15 years and announced plans to cut 15,000 jobs.
Alongside the cash call, the emerging markets-focused bank warned it faced further potential penalties for regulatory issues on top of the £415m fine imposed in 2012 by the US authorities for breaching sanctions against Iran.The Financial Conduct Authority (FCA) in the UK is among those scrutinising its internal safeguards against financial crime.
As Standard Chartered asked investors to take up new shares through a rights issue, the bank’s chief executive, Bill Winters, set out a radical restructuring of its global operations. Standard Chartered will focus on affluent customers, rather than big companies, in emerging markets such as China. It will also pull back from riskier lending to remove $100bn (£65bn) of assets – representing a third of the bank’s balance sheet. One analyst described the changes as “the most significant repositioning” of a bank he had ever seen.
Telling analysts that there were some good aspects of Standard Chartered buried under “fertiliser”, Winters said: “This bank has a history of excellence. It does not have a recent history of excellence.”
The rights issue is priced at 465p a share and gives investors two shares for every seven they already hold. The largest investor, Temasek –Singapore’s sovereign wealth fund which has a 15.8% holding – will subscribe to the rights issue fully and will help to underwrite the fundraising.
The bank’s second largest shareholder, Aberdeen Asset Management, is also backing the fundraising. Hugh Young, managing director of Aberdeen Asset Management Asia, said: “ The plan outlined seems sensible and it is clear where the bank now wishes to focus its business. We have been encouraging the bank to put its capital
position beyond doubt, so we are supportive of the rights issue.”
The shares, which were trading at £19 five years ago, were among the biggest fallers in the FTSE 100 on Tuesday morning, trading 5% lower at 674p.
Until three years ago, the bank had enjoyed 10 consecutive years of rising profits – even through the damaging 2008 banking crisis – until it was hit by the regulatory action in the US and then issued a series of profits warnings. Peter Sands, the longstanding chief executive, left this year and Winters – a former investment banker at JP Morgan – is now attempting to restore investor confidence while winding back the approach to lending which took place under his predecessor.
Winters immediately faced questions about the timing of the cash call, which comes just weeks before the outcome of stress tests on the major banks by the Bank of England which are to be published on 1 December. “The bank has not raised enough capital in our view – today’s capital raise is the exact amount raised in 2010 – it was not enough then and is unlikely to be now,” said Joseph Dickerson, an analyst at the investment bank Jefferies.
Standard Chartered has been affected by the turmoil in the Chinese economy andthe plunge in stock markets in August as well as a rise in bad debts at its Indian business. It has reduced its exposure to China by 15% over the first nine months of the year. It has also cut its exposure to commodities, which have been hurt by weak Chinese growth, by 21%, alongside trying to rectify problems in its Indonesian and Korean operations.
Winters has also indicated that the bank has lent too readily in the past. Of the $100bn of assets being removed, $20bn are large loans to a handful of investors who are now deemed too risky for the bank.
The third-quarter loss was $139m (£90m) – the first loss since the Asian debt crisis in 1998 – and over a nine-month period profits dropped from $4.8bn to $1.6bn. As well as taking a tougher approach to bad debts, the bank pointed to a 44% rise in the cost of dealing with regulatory and legal issues to $690m.
At the half-year results in August, Winters halved the dividend. The bank will not pay a further dividend until 2016 to save $700m.
Stephen Andrews, analyst at investment bank UBS, said: “We believe this is one of the most significant repositionings of a large financial group we have seen. The aim is to reposition the group away from low return corporate banking towards higher return retail/wealth management businesses.”
There was no detail on where the job cuts would fall within the 86,000-strong workforce, which is based largely in Asia and Africa. But the restructuring seeks to reduce costs by $2.9bn over four years. Winters intends to spend $3bn in the next three on bolstering risk and compliance controls and pushing into faster growing business areas.
The bank warned investors participating in the rights issue that it could face further penalties from regulators. It said it was “subject to various regulatory reviews, requests for information and investigations in relation to a number of the markets in which it operates, including two inquiries by the FCA concerning the group’s financial crime controls and the matter in the US where the authorities continue to investigate the group’s sanctions compliance in the period after 2007, as well as the completeness of its disclosures to the authorities at the time of the 2012 settlement”.