5th Aug 2015 10:25
LONDON (Alliance News) - Standard Chartered PLC on Wednesday slashed its interim dividend and said it has yet to decide whether ask shareholders for new capital, as the emerging markets bank reported a drop in first-half pretax profit and a jump in impairment charges for bad loans.
Standard Chartered has turned to Bill Winters, the ex-JP Morgan & Chase investment banker, to tackle its problems. Improving the bank's return on equity, a key measure of profitability which fell to 5.4% from 10.4% in the half, is a key focus for the new chief executive, and he said it will take "primacy" over growth.
"Clearly, 5% is not an adequate return, and even 10% will be marginal to many investors. The board and I consider this to be the minimum acceptable level which we should deliver as soon as possible," Winters said in a statement.
The emerging markets bank, which makes the bulk of its money in Asia, the Middle East and Africa, said its pretax profit amounted to USD2.10 billion in the six months to the end of June, compared with USD3.25 billion in the corresponding half of the prior year.
Operating income decreased to USD8.77 billion from USD9.25 billion, and operating expenses fell to USD5.04 billion from USD5.08 billion.
Impairment losses on bad loans and advances, together with other credit risk provisions, increased to USD1.65 billion from USD846 million.
Presenting the bank's first set of results since he succeeded Peter Sands as chief executive on June 10, Winters said he is yet to complete his review of the quality of Standard Chartered's assets, with a key focus on the company's past lending decisions and credit portfolio, impairment trends and exposures.
"The loan impairment outcome for the first half and the increase in non-performing loans is a continuation of adverse trends, and there are no signs of these reversing. The sources of impairment have been the same that the group identified previously: commodities, China and India," Winters said.
The emerging markets focused bank halved its interim dividend to 14.4 cents per share, and said it expects to make a similar percentage adjustment to the final dividend. Standard Chartered's common equity tier one ratio, a key measure of financial strength increased to 11.5% from 10.7% at the end of 2014, putting it within its targeted capital range of 11% and 12%.
"If we decide we need capital for the long-term benefit of the group, we will raise capital. If we decide we don't need it, we won't," Winters said.
The new chief executive told journalists that the decision on whether to go to shareholders for capital will partly depend on how the bank fares in the Bank of England's next round of stress testing scheduled for later this year, when the central bank will assess banks' resilience to a global downturn that hits Asia and the euro area in particular. A move to raise capital would also depend on the bank's ability to generate capital.
Joseph Dickerson, an analyst at Jefferies with an Underperform rating and 656.00 price target on the stock, said the jury is still out on a capital raise and that the company is not ruling out such a step.
Standard Chartered's plans to improve its capital position so far have been based on cutting risky assets that are more capital intensive and selling poorly performing business. Winters has said he wants Standard Chartered to have the capital strength to give it competitive advantage and the ability to withstand tough economic conditions, and cutting the dividend will help the bank to accumulate further capital.
"Today's results show the group has some very real challenges, but they are fixable and it is important to remember that there is a strong business at the heart of the group," Winters said in a statement.
Winters has been putting his stamp on Standard Chartered, shaking up the management team and halving the number of regional businesses it has in a bid to improve performance and meet a previously set USD1.8 billion cost savings target by the end of 2017.
Standard Chartered shares were up by 1.8% at 969.80 pence late morning in London.
By Samuel Agini; [email protected]; @samuelagini
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