3rd Nov 2015 06:41
LONDON (Alliance News) - Standard Chartered PLC on Tuesday said it will raise GBP3.3 billion in a rights issue and axe its final dividend for 2015 to strengthen its balance sheet, as the Asia-focused bank reported that it swung to a third-quarter loss on a jump in impairment charges.
The potential for an equity fundraising had been raised by Standard Chartered itself. The bank, which makes most of its money in Asia, Africa and the Middle East, has been nursing the wounds of a two-year profit slide, exposure to commodities at a time of low pricing, and weak investor sentiment towards emerging markets amid China's economic slowdown. Ten years of income and profit growth to 2012 created a portfolio now considered by the board to be "capital and cost inefficient" in the current regulatory environment.
The two-for-seven rights issue is designed to increase the group's common equity tier one capital ratio, a key measure of financial strength, to 13.1% on June 30 levels from 11.5%. The bank said it intends to issue additional tier one securities to build its capital levels over time.
The issue price of the rights issue has been set at 465 pence, a 35% discount to the Monday's closing price of 713.60p. The rights issue is fully underwritten. The bank said that Singapore's Temasek Holdings, its largest shareholder, will take up its rights for 15.8% of existing share capital.
The news came as Chief Executive Bill Winters revealed the outcome of a strategic review that will aim to shift the group's focus more on affluent retail clients and less on asset-intensive corporate and institutional banking businesses.
Standard Chartered's decision to opt against paying a final dividend means the total payment for 2015 will be the 14.4 US cents declared with its half-year results, down from 86.0 cents in 2014. The bank intends to return to dividends in respect of 2016.
The bank said it swung to a USD139 million pretax loss in the three months to September 30, from a USD1.53 billion pretax profit in the corresponding quarter the prior year.
Third-quarter operating income was down 18% to USD3.68 billion as activity among clients declined due to volatile market conditions, while operating expenses were down 3.3% to USD2.24 billion when excluding regulatory and restructuring costs of USD262 million. In addition, Standard Chartered currently estimates that the cost of the UK's bank levy will to increase to USD480 million from USD366 million the prior year.
Impairment losses on loans and advances and other credit risk provisions swelled to USD1.23 billion from USD536 million due to exposure to commodities and to India. Other impairment of USD161 million was due to "write-downs of certain strategic investments which were impacted by market conditions in the period".
The latest quarterly figures mean that Standard Chartered's pretax profit for the first nine months of 2015 was down 65% year-on-year to USD1.69 billion.
CEO Winters, who took charge on June 10, had already cut Standard Chartered's interim dividend by half and continued to reduce the bank's risk-weighted assets to improve financial strength.
"We are assertively managing costs to create investment capacity, reallocating capital to improve returns, and improving the group?s risk profile. This comprehensive programme of actions will result in a lean, focused and well capitalised international bank, poised for growth across our dynamic and growing markets in Asia, Africa and the Middle East," Winters said in a statement on Monday.
Standard Chartered's plan will result in the restructuring of about one third of its risk-weighted assets, with the affected businesses and assets equivalent to more than USD100 billion of the group total.
Winters now wants to reduce costs by USD2.9 billion from 2015 to 2018, having previously aimed to trim USD1.8 billion by the end of 2017, and expects about USD3.0 billion in restructuring charges to be booked by the end of 2016 due to "potential losses on liquidation of non strategic assets, redundancy costs and goodwill write downs". The bank expects to cut around 15,000 jobs, although that is a gross figure that does not include new recruitment in other areas.
Under the new strategic plan, the bank wants to undergo a "step-up" in cash investment by more than USD1.0 billion over three years. The bank wants to put the money into its retail and private banking businesses, its Africa franchise, its Chinese renminbi services and into improving its controls.
Standard Chartered will target an increased CET1 capital ratio of 12% to 13%, and a medium-term return on equity of 10%.
By Samuel Agini; [email protected]; @samuelagini
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