Standard Chartered must raise up to US$10 billion, Mizuho says

[LONDON] Standard Chartered Plc may need to raise as much as US$10 billion from investors to comply with stricter regulations, create a buffer for future losses on loans, and invest for growth, according to Mizuho Securities Asia.

Chief executive officer Bill Winters may opt to sell US$5 billion to US$10 billion of new shares to boost the bank's common equity Tier 1 ratio, a measure of high-quality capital, to 11 per cent, and to offset an estimated US$824 million of bad-loan charges next year, Mizuho said on Wednesday.

"We expect Standard Chartered to launch a rights issue later this year or early in 2016" to "regain investor confidence about the future direction of the bank," said analyst James Antos, who has a buy rating on the stock, in a note to investors.

"Capital raising is essential if the bank is to return to past levels." Mr Winters, a former co-head of JPMorgan Chase & Co's investment bank, replaced Peter Sands, who failed to reverse a drop in earnings over the past two years.

The CEO has started restructuring his management team, stripping his deputy Mike Rees of most of his powers after an exodus of executives earlier this year. The London-based lender, which generates most of its earnings in Asia, is eliminating some 4,000 jobs to help save about US$1.8 billion through 2017.

Even so, analysts at Barclays Plc and Sanford C Bernstein Ltd also say a rights issue remains probable, especially if the bank's bad loans increase or it is fined again for regulatory violations in the US. The lender also faces stress tests from the Bank of England this year that will focus on emerging markets and commodities exposure.

"A capital issue would be dilutive, and we would expect the bank's share price to fall initially, providing investors with an opportunity to add to core holdings," Hong Kong-based Mr Antos said. "Share dilution would be between 12 and 15 per cent, assuming no discount to the recent closing price." Standard Chartered has gained 4.8 per cent to 1,009 pence this year in London trading. The 45-member Bloomberg Europe 500 Banks and Financial Services Index has risen 18 per cent in the period.

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