Standard Chartered eyes bonus clawbacks after loss

A pedestrian walks past a branch of Standard Chartered bank in Hong Kong on February 23, 2016.
Philippe Lopez | AFP | Getty Images
A pedestrian walks past a branch of Standard Chartered bank in Hong Kong on February 23, 2016.

Standard Chartered is considering clawing back bonuses from about 150 current and former senior staff, its new chief executive said after reporting its first annual loss for more than a quarter of a century.

Bill Winters told analysts that StanChart had established "accountability reviews" to investigate if bonuses can be recouped from any people found to be responsible for compliance and risk-management breaches.

Shares in the emerging markets bank fell sharply after it blamed the cost of a new restructuring plan and multibillion loan impairments for a pre-tax loss of $1.5bn last year.

StanChart's Hong Kong-listed stock slipped 6.5 per cent in early Wednesday trading to HK$44.70.

The bank has already clawed back some bonuses and Mr Winters said that it would do so again for "clear-cut cases of malfeasance" or "gross negligence". He said that the bank would "start with unvested awards" before clawing back bonuses already paid out.

The London-listed bank, which specialises in Asia, the Middle East and Africa, came through the financial crisis relatively unscathed. But under former chief executive Peter Sands, it embarked on an aggressive growth spree that Mr Winters has blamed for building up excessive risks in the balance sheet.

When Mr Sands left in May, he kept a large amount of deferred share awards, most of which are subject to performance conditions. Those awards are now worth less after a 50 per cent drop in the shares in the past year and many may be worth nothing if the targets are not met.

Sir John Peace, StanChart chairman, said that bonuses had been scrapped for current executive directors and the bonus pool had been cut by almost a quarter to $855m.

Mr Winters said that his 200 top managers would receive a performance-based incentive scheme that pays out in 2018. He will be paid $8.4m on top of his fixed pay of $2.3m if all targets are met.

Amid rising investor concern about the impact on banks of slowing economic growth and the drop in commodity prices, StanChart said on Tuesday that provisions for bad loans had almost doubled to $4bn.

The bank was also hit by a $1.8bn restructuring charge, as well as an $863m non-cash loss on revaluing its derivative book and a $362m goodwill impairment against its Taiwan business.

In total, StanChart's first annual net loss since 1989 came to $2.4bn, against a profit of $2.7bn the previous year.

Mr Winters said: "It rips at our soul every time we look at these numbers and we don't ever want to have to stand up and tell this story again."

"No doubt we will have a difficult and challenging time in 2016 with a challenging environment. But we are building from there and we are taking concrete actions."

Revenues fell 15 per cent to $15.4bn, because of weaker emerging market currencies and the loss of some clients caused by the disruption of restructuring.

Chirantan Barua, banks analyst at Bernstein, remained bullish about StanChart, saying: "Management has taken the right step in attacking the cost base top down — a strong lever that Asian banks will pull in the next few years as growth slows down."

The results come three months after StanChart announced a £3.3bn rights issue that helped it to scrape through the Bank of England's latest stress tests.

The bank's core equity tier one ratio, a key measure of capital strength, rose from 10.7 per cent to 12.6 per cent last year, within its target range.

As well as boosting the bank's capital, Mr Winters has also shaken up its top management and overhauled its strategy. He aims to shed 15,000 jobs, to cut 30 per cent of its $10bn cost base and to restructure almost a third of its risk-weighted assets.

The bank said on Tuesday that it had already cut $600m of costs through restructuring and disposals. But total operating costs were still flat last year, which the bank blamed on a 40 per cent rise in regulatory expenses and a higher contribution to the UK bank levy.

Mr Winters said: "We did contemplate this kind of environment when we set out this programme in November. If we need to take additional action, of course we will, but we think we are on track."