Will Standard Chartered PLC Be Forced To Cut Its Dividend?

Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) is in crisis mode. After reporting a dreadful 2013, the bank’s management quickly put together a recovery plan. 

However, some shareholders have complained that the bank’s recovery progress is too slow and have started to turn on management. What’s more, rumours are starting to do the rounds, suggesting that Standard might be forced to slash its hefty dividend payout. 

A very real threat

According to some City analysts, there is now a very real possibility that Standard will be forced to cut its dividend. Analysts argue that the rising number of loan defaults, especially within Asia, will cause the bank to write down assets and report extensive losses.

Unfortunately, these write downs will dent the bank’s capital buffer. As a result, analysts now believe that Standard will report a capital buffer shortfall of $5.5bn by 2015.

In percentage terms, Standard’s tier one capital ratio could fall to only 10.7% by 2015, a ratio of less than 10% is considered worrying. Of course, this forecast excludes the prospect of a Chinese credit crisis, which could throw Standard into chaos.  

With the bank’s capital cushion under pressure, Standard could be weighing up a 50% dividend cut to conserve cash and boost capital levels. 

Not all bad news

The underlying theme behind Standard’s troubles is the bank’s South Korean arm. Indeed, Standard’s Korean division swung to a loss last year and the bank was forced to take a $1bn write down on the value of its Korean assets. 

Unfortunately, Korea used to be the jewel in the crown of Standard’s Asian banking empire but now management is scrambling to stem regional losses and cut costs. 

Thankfully, things are already starting to happen. Earlier this week Standard announced the sale of its Korean savings bank and consumer finance operations in for a total of $148m. Further, the bank is in process of closing at least 73 of its 350 branches in the country.

Expanding 

But while the bank is pulling out of the Korean consumer banking market, it is expanding within the Korean wealth management market. As Asian regional wealth continues to expand, wealth management is going to become big business within Korea and Standard sits in the perfect position to profit. 

Specifically, Standard, with its international operations and heavy Asian presence, can use its global experience to help Korean customers. Additionally, the bank’s presence within major financial centres puts it in a great position to manage money for clients.