23rd Feb 2016 10:57
LONDON (Alliance News) - Standard Chartered PLC on Tuesday said it swung to its first annual loss since 1989, with the bank's operating income coming under pressure in 2015 amid a costly restructuring and deteriorating financial markets.
London-listed Standard Chartered, which makes most of its money in Asia and emerging markets, said it expects a "subdued" financial performance in 2016.
The bank's USD1.52 billion pretax loss in 2015 came as a surprise to the market, and measured up against a pretax profit of USD4.24 billion in 2014. Its net loss of USD2.36 billion contrasted with the prior year's USD2.51 billion net profit.
"Chinese equity markets have been increasingly volatile, impacting sentiment around the world, and commodity markets have plumbed new lows," Chief Executive Bill Winters said.
Shares in Standard Chartered were down by 5.3% at 413.10 pence on Tuesday morning, having plunged by as much as 12% to 383.85p shortly after the results were published just after the London market open.
The former JPMorgan Chase & Co banker, who took the helm in June 2015, has detailed a plan to improve returns and cut inefficiency from the business. Tuesday's results showed the scale of the challenge ahead.
Under Winters' leadership, Standard Chartered has raised USD5.1 billion in a rights issue and axed its final dividend payment, meaning that the total payment for the year fell to 13.7 cents from 81.9 cents the prior year. The bank intends to resume dividend payments in 2016.
The bank's common equity tier one ratio - a measure of financial strength - improved to 12.6% from 10.7% over the course of the year, supported by efforts to raise and conserve capital. The bank expects the future release of around USD20.0 billion of risk-weighted assets to push the ratio up towards around 13%, the top end of its guided range, as those risky exposures are liquidated.
Overall, Winters is aiming to restructure around USD100.0 billion of risk-weighted assets, about one-third of the group total. The final quarter of 2015 featured a restructuring charge of USD1.8 billion, representing 60% of the original expectation set out with the results of a strategic review in November. Winters said on Tuesday that he remains "confident" in the original estimate, meaning USD1.2 billion in charges are still likely to be made.
According to Chief Financial Officer Andy Halford, the main components of the restructuring charges in the final quarter included nearly USD700.0 million of redundancy costs, including a "special retirement programme" in Korea of over USD400.0 million, just under USD1.0 billion in additional loan impairments for liquidating the USD20.0 billion in RWAs, and USD126.0 million in goodwill in connection with the bank's operations in Thailand.
More restructuring will follow in 2016, according to Halford, who said the bank will accelerate its efforts. "We will intensify our focus on balance sheet optimisation, on cost efficiency, and on investing to enhance controls and drive stronger returns in the future," he said.
Heavy restructuring costs come at a time of increasing pressure on revenue in the banking sector, as historically low interest rates and market mayhem in China continue to drag on income.
Standard Chartered's underlying operating income fell by 15% to USD15.44 billion in 2015, hurt by weaker currency exchange rates against the dollar, efforts to exit, sell or de-risk businesses, falling commodity prices, and "lower" business activity.
Underlying operating expenses fell by 6.5% to USD9.03 billion. That figure excludes the cost of the UK bank levy, which increased by 20% to USD440.0 million, and of other regulatory costs, which rose by 40% to USD1.01 billion.
With Winters planning to cut 15,000 jobs on the way to saving USD2.9 billion from 2015 to 2018, the bank said it achieved "cost efficiencies" of USD600.0 million last year. More than 6,800 people lost their jobs at the bank in 2015.
"Through taking these tough decisions on costs, we are creating capacity to invest in repositioning our Retail and Private Banking businesses, in our Africa franchise, in our RMB services, and in enhancing controls," Halford said, referring to the Chinese currency.
Impairment charges on bad loans almost doubled, rising to USD4.01 billion from USD2.14 billion, due to exposures beyond the bank's recently tightened risk tolerance, falling commodity prices and deterioration in financial markets in India.
"While 2015 performance was poor, the actions we took on capital throughout last year and in particular in December have positioned us strongly for the current macro environment. We have a balance sheet that is resilient, and we are in the right markets," Winters said.
"We have identified our risk issues, and we are dealing with them assertively. We are making good progress on executing our strategy, creating a bank that will generate improved financial performance over time following from our improved cost efficiency, tightened risk controls, and focus on our many core advantages," he added.
By Samuel Agini; [email protected]; @samuelagini
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