StanChart expansion halts after profits drop

Martin Arnold and Patrick Jenkins
A logo is seen outside the headquarters of Standard Chartered in London, U.K.
Matthew Lloyd | Bloomberg | Getty Images

Standard Chartered, one of the most successful growth stories in global banking for a decade, has called a halt to its grand expansion as it seeks to conserve capital amid the worst drop in profits for more than 12 years.

After a period in which it aggressively took business from crisis-hit western rivals, StanChart is now pulling back in its heartland of Asia and losing deals to regional rivals, senior figures at the bank have told the Financial Times.

In a sign of the pace of change, StanChart has fallen from eighth place last year in the league tables for project finance in Asia, excluding Japan, to 21st, according to Dealogic. It has also dropped from 16th to 23rd in Asian trade finance, while market share in leveraged finance has tumbled from 5.8 per cent to less than 4 per cent. Together, the three areas are estimated to account for about 15 per cent of group revenues.

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Yet some of the bank's biggest investors are becoming restless about its performance, and 41 per cent voted against its pay policy at the annual meeting. "A protest vote on pay is often a symptom of bigger issues on a board or at a company," said one top-20 shareholder.

The bank, hit by a slowdown in emerging market economies and rising competition from Asian rivals,warned this month that operating profit would fall by a fifth when it reports interim results in two weeks.

Its shares have fallen by a third since peaking above £18 in March 2013 and are down more than a fifth against the FTSE All-share banks index, prompting takeover talk.

Why StanChart likes emerging Asia
Why StanChart likes emerging Asia

There is growing disquiet among some of the biggest shareholders over the duo who have led the bank's rapid expansion: Peter Sands, chief executive since 2006, and Sir John Peace, chairman.

One executive said the deterioration in performance was causing strain in the top echelons of the bank, which came through the crisis relatively unscathed. Since the start of this year, it has suffered a string of senior departures, including Richard Meddings, chief financial officer; Steve Bertamini, head of its consumer arm; and Lenny Feder, head of its financial markets unit.

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Consensus analyst forecasts are for dividends as a percentage of net income to fall from 52 per cent last year to an average of 44 per cent over the next three years. The bank said the board understood the importance of a dividend to shareholders and it remained "a key focus".

The bank added that it remained "well capitalized, by any measure, both compared to peers and in absolute terms". Its common equity tier one ratio – a key yardstick of ­financial strength – was above most European rivals in January at 11.2 per cent on a fully loaded Basel III basis (using the new rules that will apply at the end of the transition period in 2019).

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"We are not yet calling for a rights issue at this bank, but we think the dividend could be at risk," said Joseph Dickerson, an analyst at Jefferies. "Their capital is in excess of where they need to be, but there is not a lot of room for manoeuvre."

The bank added that in recent years about 40-50 per cent of the dividend was paid in shares, reducing its impact on capital. A senior insider said: "I can't see the dividend being cut – the only circumstances I can see that happening is if it is the only alternative to raising equity."