Standard Chartered's stock rating cut as capital concerns mount

[LONDON] Standard Chartered Plc, whose shares fell 29 per cent last year, was downgraded by analysts at Investec Plc on concerns the bank will have to raise capital and amid a possible change in management.

Investec joins Credit Suisse Group AG, Exane BNP Paribas, Morgan Stanley, Sanford C. Bernstein and UBS Group AG that have downgraded or reiterated negative ratings on the stock this year. The bank is under pressure to raise its capital buffer, the lowest among Britain's largest lenders, as losses on loans mount due to lower commodity prices and with the Bank of England preparing harsher stress tests.

"The inexorable capital debate now has the potential to become self-fulfilling, especially in the context of possible further management change," said Ian Gordon, an analyst at Investec, who cut his rating to hold from buy. "We now fear that fresh capital may be raised during 2015 -- perhaps as much as US$5 billion -- to bolster regulatory ratios."

The shares fell 0.5 per cent to 945.80 pence at 11:04 am in London. They have decreased about 2 per cent this year, while HSBC Holdings Plc has declined 1.2 per cent in the period.

Standard Chartered hired executive search firm Egon Zehnder to find a successor to Chief Executive Officer Peter Sands, 53, a person with knowledge of the matter said last month. Sands took over his job in 2006, making him the longest serving head of any major European lender.

The CEO pledged on Jan 8 to eliminate 4,000 jobs, shut equities trading and save about US$400 million in expenses, in the bank's most aggressive cost cuts to date to help reverse a slump in earnings and mounting loan impairments.

"We expect soft revenue" as well as "higher impairments, a dividend cut and slippage in the common equity Tier 1 ratio," Chris Manners, an analyst at Morgan Stanley with an underweight recommendation on the shares. "We expect impairments of US$640 million for the quarter, up 19 per cent versus the third-quarter, as we expect more caution when assessing commodity related exposures."

The bank reports full-year results on March 4.

BLOOMBERG