4th Mar 2015 10:14
LONDON (Alliance News) - Standard Chartered PLC Wednesday reiterated that it has no plans to turn to the market to bolster its capital position, instead setting out plans to cut capital-intensive risk assets and to sell and exit under-performing businesses, as the emerging markets bank maintained its dividend despite a 30% drop in pretax profit in 2014.
Standard Chartered, which is headquartered and listed in London but conducts most of its business in Asia, Africa and the Middle East, said pretax profit fell to USD4.24 billion in 2014 from USD6.06 billion in 2013, hit by lower operating income, higher operating expenses, and an increase in impairment losses on bad loans.
"We faced a perfect storm: negative sentiment towards emerging markets, a sharp drop in commodity prices, persistent low interest rates and surplus liquidity, low volatility, and a welter of regulatory challenges. As a result, we saw intense pressure on margins and volumes, a significant uptick in impairment and a sharp increase in regulatory related cost," Chief Executive Peter Sands said in a statement.
However, Sands admitted that some of the bank's past decisions also played their part in the profit slump, mentioning difficulties in its Korean business and shortcomings that have led to fines from US authorities over anti-money laundering weaknesses in its systems.
Nevertheless, Standard Chartered shares reacted positively to the bank's earnings statement, rising by as much as much as 7% before giving back some of that gain to trade up 5.0% at 1,023.00 pence on Wednesday morning.
The results were preceded by last week's announcement that Standard Chartered had chosen former JPMorgan Chase executive Bill Winters to succeed Peter Sands as chief executive this summer, while Chairman John Peace is to depart next year. The departures, which were announced as part of a broader board shake-up, came as the feeling that a fresh perspective at the top could help the emerging markets bank to recover following a string of profit warnings and regulatory scuffles in the US.
Speaking to reporters in a conference call Wednesday, Sands had an unambiguous answer to the growing number of voices that have called for the bank to raise capital in a rights issue or by other means that would require the issuance of new shares.
"We have made very clear we are comfortable with our capital position. We're going to pull the levers within our control," Sands told reporters. "We have no plans to raise capital. We have maintained the dividend."
The outgoing chief executive said that Standard Chartered's 10.7% common equity tier 1 ratio on an end-point basis, a measure of financial strength, represents a buffer of 200 basis points to "known" regulatory requirements. The emerging markets bank said it is wants to increase its CET1 ratio to between 11% and 12% in 2015.
Finance Director Andrew Halford said the group is prioritising "organic capital accretion" by selling assets and exiting some of its businesses. It expects to release between USD25 billion and USD30 billion of risk-weighted assets, which are more capital intensive, in the next two years.
Standard Chartered also said it is targeting USD1.8 billion of "sustainable" cost savings over the next three years, as it looks to improve returns.
"The USD1.8 billion is over three years, mainly from savings in our underlying cost base. You have to offset inflation of about 5% a year in our markets, trends in regulatory costs and any investments we make above and beyond pace of investment we've already got. The USD1.8 billion are real cost savings, building on cost savings already achieved," Sands told reporters.
A USD400 million underlying cost savings target revealed in November 2014 is "more than on track", Sands said, while it is expecting a further USD200 million of savings from business exits and disposals this year.
"The progress we have made in attacking the cost base underpins our confidence in achieving USD1.8 billion in cost savings over the period from 2015 to 2017, Sands said.
"Some of the remaining savings will come from the full-year impact of actions we have already taken, for example our decision to exit equities, which will give us USD100 million of savings in 2016. Some will be the result of further peripheral-business exits or withdrawals that we are currently pursuing, but most will be from achieving sustainable efficiency improvements in our big markets and core business activities," Sands said.
The bank said its target is to achieve a return on equity of more than 10% in the medium term, as it reported a normalised return on ordinary shareholders' equity of 7.8% in 2014, compared with 11.2% in 2013.
Halford, who joined as finance director from Vodafone PLC last year, said the measures taken were approved by the board, suggesting that the bank had to take action before the arrival of the incoming chief executive.
"We're not going to wait around for Bill to arrive," Halford told reporters.
Standard Chartered declared a full-year dividend of 86.0 cents per share, flat on the year before.
By Samuel Agini; [email protected]; @samuelagini
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