StanChart cuts dividend by half

STANDARD Chartered CEO Bill Winters cut the dividend by half yesterday and signalled that the bank would not need to raise capital at once as it grapples with dwindling profit.

STANDARD Chartered (StanChart) CEO Bill Winters cut the dividend by half yesterday and signalled the bank would not need to raise capital at once as he grapples with dwindling profit. The shares rose.

The interim dividend was reduced to 14.4 US cents a share as adjusted pretax profit fell 44% to $1.8bn from a year earlier, the London-based bank said. The annual payout might be cut by a similar extent, which could save the lender about $1bn, finance director Andy Halford said.

Mr Winters took over from Peter Sands after two years of falling earnings and a share slump. With a rout in commodity prices pushing up bad loans in India and China and rising compliance costs weighing on profit, some analysts had forecast a capital gap of up to $10bn. The CEO said the bank probably would not raise capital this year.

Chirantan Barua, an analyst at Sanford C Bernstein, said cutting the dividend “is a great move and minimises the probability of a capital raise north of $5bn in the months to come”.

Mr Winters said the lender had “some very real challenges, but they are fixable”.

The bank would decide whether to tap investors after the Bank of England published the results of its annual stress test in December, he said. The second round of tests this year will enhance scrutiny of firms’ exposure to developing markets and commodities.

“There has been a significant improvement in capital,” said Gary Greenwood, an analyst at Shore Capital. “This significantly reduces the possibility of a capital raise, in our view, and we think this is the key factor behind the positive share price reaction to what, on the face of it, looks like a poor set of results.”

The bank’s return on equity, a measure of profitability, fell to 5.4% at the end of June from 10.4% a year earlier. The common equity Tier 1 capital ratio, a measure of financial strength, gained 80 basis points to 11.5% from the end of December. That puts the lender within its target range of between 11% and 12% this year.

“Clearly, 5% is not an adequate return, and even 10% will be marginal to many investors,” Mr Winters said, referring to the return on equity. “The board and I consider this to be the minimum level which we should deliver as soon as possible.”

First-half operating income fell 8% to $8.5bn, missing the $8.8bn estimate of analysts. Impairments leapt 70% to $1.7bn driven by “adverse trends” in India, where losses on loans to corporate, institutional and commercial clients rose $369m.

“A lot of the earnings miss appears to be ‘kitchen sinking’ by the new CEO,” Citigroup analysts said. “For example, more conservative” asset valuations.

In South Korea, the bank made a $16m profit in the first half compared with a $126m loss a year earlier. Loan impairments for retail clients fell $94m and the bank exited its consumer finance business in the country after an ill-fated expansion.

Standard Chartered said it was on track to cut costs by more

Clearly, 5% is not an adequate return [on equity], and even 10% will be marginal to many investors.

than $400m this year as part of plans laid out by Mr Sands to save about $1.8bn to end-2017. The bank has cut 4,000 jobs so far this year, about 5% of headcount, Mr Halford said.

In the first half, regulatory costs jumped 60% to $453m, partly as the bank increased the number of compliance officers.

First-half revenue fell at all four divisions, led by a 19% slump in the commercial clients business. Corporate and institutional clients, the largest division, fell 10%. The lender has been hurt by slowing Asian economies and a slump in Chinese equities.

Mr Winters said the bank had cut its commodities exposure to $49bn in the first half, down from $62bn at the end of 2013.

Mr Halford said: “We are watchful of China, there are ups and downs and obviously the stock exchange has been moving around a lot recently. In the medium term, there is a growth opportunity there but obviously we need to be very thoughtful and make sure we have limited exposures.”