Standard Chartered jumps as bank rules out capital raise

[HONG KONG] Standard Chartered Plc shares surged to a four-month high in Hong Kong after the bank said it doesn't plan to tap investors for capital and left its dividend unchanged.

The lender, which last week announced a management reshuffle, held its dividend at 86 cents a share, according to a statement on Wednesday. Full-year pretax profit slumped 30 percent to US$4.2 billion from 2013, missing the $5.6 billion average estimate of 17 analysts in a Bloomberg survey.

"We have no plans for a capital raise," Chief Executive Officer Peter Sands, 53, who will be succeeded by former Wall Street banker Bill Winters in June, said on a conference call. Instead, the bank plans to cut costs, sell assets and remove riskier assets to bolster its financial strength, he said.

Shares of the lender climbed 3.6 per cent to HK$120.60 as of 9.40 am Hong Kong time, the highest level since Nov 4. Standard Chartered's London shares closed 5.1 per cent higher at 1,024 pence, taking their increase this year to 6.3 per cent after a 29 per cent slump in 2014.

Mr Winters, 53, a former co-head of investment banking at JPMorgan Chase & Co, will take over in June after Sands failed to convince investors he was the right person to reverse two years of falling profit amid slower economic growth in Asia, plummeting commodity prices and US conduct fines.

"The market's fear has been a dilutive capital raise and management tried to signal here they don't need to do that," said Gary Greenwood, a Liverpool, England-based analyst at Shore Capital Group Ltd. with a buy rating on the stock. "The good news is they've held the dividend and the capital ratio is a bit better than the market anticipated." In the most aggressive cost cuts during his tenure, Mr Sands pledged on Jan 8 to eliminate 4,000 jobs and shut equities trading. The bank said on Wednesday it's "more than on track" to achieve cost cuts of US$400 million for this year, with overall savings seen at about US$1.8 billion through 2017.

Still, the bank cut its profit target, with Jaspal Bindra, head of the bank's operations in Asia who is also leaving the firm this year, telling reporters that Standard Chartered is now targeting a return on equity, a measure of profitability, of more than 10 per cent in the "medium term." In 2012, the bank was targeting a "mid-teens" return.

"It's hard to say whether the ROE plans will survive the arrival of Bill Winters," said Jason Napier, an analyst at Deutsche Bank AG in London, who rates the shares sell. "We think it unlikely that such modest change will be accepted by the new CEO as the plan he will live with for the next three years." Under Mr Winters, the bank will also face a round of stress tests, with the regulator set to increase scrutiny on banks' global reach, currency and commodity exposures.

Standard Chartered, which generates most of its revenue in Asia, plans to raise its common equity Tier 1 capital ratio, a measure of financial strength, to between 11 per cent and 12 per cent this year, after it dropped to 10.7 per cent in 2014 from 11.2 per cent a year earlier.

The bank already cut its exposure to commodities after a rout in global energy prices increased the provisions it had to make against souring loans. Loans linked to commodities fell to US$55 billion, a drop of US$6 billion in the second half of the year. The bank said it focused on traders with "sound internal risk management" and "good access to other liquidity sources," cutting some 150 relationships since early 2013.

Under Mr Sands, total assets at the lender, which focuses on Asia, the Middle East and Africa, increased to US$726 billion from US$266 billion in 2006, when he first took over. The bank operates some 1,200 branches and offices in 71 countries around the globe, according to its website.

With earnings under pressure, Standard Chartered is seeking to focus on more profitable businesses. About a quarter of its restructuring costs of US$181 million were related to job cuts at the loss-making Korean unit. The bank said it plans to cut between US$25 billion and US$30 billion of risk-weighted assets from underperforming businesses and "low-returning relationships" to bolster its capital buffers.

Mr Winters will also have to tackle conduct issues in the US, where prosecutors said in December that the bank may have committed trade sanctions violations beyond those covered by a 2012 settlement for conducting prohibited business with Iran. US government oversight of the bank will continue for a further three years, even after the bank agreed to pay US$327 million in 2012 covering conduct from 2001 to 2007.

In 2014, the bank took a US$193 million writedown on assets related to a fraud in China involving metal stockpiles.

"We saw intense pressure on margins and volume, a significant uptick in impairment and a sharp increase in regulatory-related cost," Mr Sands said in the statement. "Some of the decisions we took in the past look less good now than they did at the time," he said, citing expansion in Korea.

Executive directors cited the "disappointing performance" of the company as they waived their bonuses for 2014. The bank's bonus pool shrank 9 per cent in the year.

"I'm clearly disappointed with our performance in 2014, and I take responsibility for that as the CEO," Mr Sands told journalists on Wednesday. "The buck stops here."

BLOOMBERG