Standard Chartered plc announced plans to raise $5.1 billion in new capital through a rights issue and cut 15,000 jobs by 2018 as new chief executive Bill Winters tries to restore profitability at the lender that has been hit hard by a slowdown in emerging markets.
The news of the restructuring came as Asia-focused Standard Chartered (StanChart) posted a third-quarter operating loss of $139 million due to growing regulatory costs and rising loan impairments in India. Revenue dipped 18 per cent year-on-year.
This was the fifth successive quarter of falling revenue for StanChart, hurt by Asia’s economic slowdown, rising bad loans and weakening currencies. The bank earns more than two-thirds of its profits from Asia.
The plan announced by the British lender yesterday also included restructuring $100 billion worth of risk-weighted assets, a third of its total, and a new goal to cut costs by $2.9 billion between 2015 and 2018.
StanChart in June named former JPMorgan investment banker Winters as its chief executive, after previous CEO Peter Sands failed to save his job with restructuring efforts that saw him axe over 4,000 staff.
“This is ... an aggressive and decisive set of actions to fundamentally shore up the underpinnings of the bank,” Winters told reporters on a conference call.
The capital raise and the asset restructuring will together push the bank towards a new common equity tier-1 capital (CET1) ratio goal of 12-13 per cent, the bank said.
Plan includes restructuring,extensive cost-cutting
The bank’s current CET1 ratio – a core measure of financial strength – fell slightly in the third quarter to 11.4 per cent, StanChart said in its results filing to the Hong Kong Stock Exchange.
StanChart shares slid as much as 6.2 per cent in Hong Kong after the results before recovering slightly to be down 3.2 per cent.
The rights issue, StanChart’s first capital raising in five years, was launched yesterday at a price of 465 pence per share, a 35 per cent discount to its last traded price in London. Two new shares will be issued for every seven existing shares.
StanChart said Singapore’s Temasek, the bank’s top shareholder, has indicated it intends to take up its full allocation of the issue, representing 15.8 per cent of the existing share capital.
“[There is] still a lot of hard work to put in but the path is clear,” said Hugh Young, managing director at Aberdeen Asset Management, the bank’s second-biggest shareholder, in an e-mail.
It also said it won’t pay a final dividend for the financial year ending December 31, 2015. Analysts had expected that Winters would wait until after Bank of England stress test on December 1 before announcing the widely-expected capital raise.
StanChart said Britain’s Prudential Regulation Authority was aware of the bank’s capital raising plans and had not raised any objection.
“The capital raising is clearly good from our viewpoint and so is credit-positive. But they have a lot of restructuring costs to get out of the way and so will need more capital to cover these,” said David Marshall, credit analyst with independent research firm CreditSights in Singapore.