StanChart posts first loss in 26 years as re­vamp costs bite

The Pak Banker - - FRONT PAGE -

Stan­dard Char­tered re­ported its first an­nual loss since 1989 as hefty re­struc­tur­ing costs and weak com­mod­ity prices took their toll on the emerg­ing mar­kets-fo­cused len­der.

The bank slumped to a head­line pre­tax loss of $1.5 bil­lion, af­ter ac­count­ing for costs from re­dun­dan­cies and im­pair- ments on bad loans. Un­der­ly­ing profit plunged 84 per­cent to $800 mil­lion, miss­ing an­a­lysts' av­er­age es­ti­mate of $899 mil­lion, ac­cord­ing to data. The loss shows the scale of the task fac­ing new Chief Ex­ec­u­tive Bill Win­ters as he at­tempts to re­store rev­enue growth af­ter six suc­ces­sive quar­ters of de­cline. The bank's shares fell as much as 12 per­cent be­fore re­cov­er­ing slightly to be down 5.4 per­cent at 0942 GMT.

For­mer JPMor­gan in­vest­ment banker Win­ters last Novem­ber an­nounced plans to axe 15,000 jobs and raised $5.1 bil­lion in cap­i­tal as part of a plan to re­store prof­itabil­ity and shore up the bal­ance sheet. "The chal­leng­ing ex­ter­nal en­vi­ron­ment is not an ex­cuse for our per­for­mance. We are not un­wit­ting vic­tims," Win­ters said.

"The ex­ter­nal chal­lenges in­crease our ur­gent need to take all nec­es­sary steps to ad­dress the struc­tural and op­er­a­tional is­sues we have iden­ti­fied as crit­i­cal to im­prov­ing re­turns".

The bank said none of its ex­ec­u­tive di­rec­tors would be paid a bonus for 2015, while bonuses across its work­force were down an av­er­age 22 per­cent year-on-year.

The len­der plans to in­tro­duce a new long-term bonus plan for its 200 or so most se­nior man­agers that will pay out in 2018 if they meet tar­gets to im­prove share­holder re­turns and other strate­gic ob­jects. Stan­dard Char­tered's prob­lems be­gan to emerge in 2012, when af­ter a decade of ris­ing prof­its the len­der was hit by U.S. reg­u­la­tory fines and the start of a pro­longed down­turn in emerg­ing mar­kets and com­mod­ity prices on which much of its for­tunes de­pend.

Un­able to re­verse the trend, pre­vi­ous CEO Peter Sands was ousted in Fe­bru­ary last year. The de­te­ri­o­rat­ing en­vi­ron­ment in emerg­ing mar­kets caused the bank's gross level of non­per­form­ing loans to jump from $7.5 bil­lion at the end of 2014 to $12.8 bil­lion by end-2015.

How­ever the bank said it is re­duc­ing its risk ex­po­sure and over the past year had cut its ex­po­sure to com­modi­ties by 28 per­cent, with its com­mod­itylinked lend­ing port­fo­lio now less than $40 bil­lion. "On the as­sump­tion that com­mod­ity prices re­main at around cur­rent lev­els, we would not ex­pect this port­fo­lio to re­duce ma­te­ri­ally from here," Chief Fi­nan­cial Of­fi­cer Andy Hal­ford said.

An­a­lysts at Bern­stein Re­search said the bank would be able to weather the storm and still had a rel­a­tively good un­der­ly­ing busi­ness model. "Trade is not dead and Stan­dard Char­tered still has a top class fran­chise in emerg­ing mar­kets," they wrote.

The bank con­firmed it would not pay a div­i­dend for 2015, but Chair­man John Peace said the board in­tends a pay­out for the 2016 fi­nan­cial year.

The bank's shares had fallen 22 per­cent this year amid a 20 per­cent drop in Euro­pean bank stocks as in­vestors worry about slow­ing growth and lenders' loans to the em­bat­tled en­ergy sec­tor.

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