Is It Time To Buy Standard Chartered PLC Following Restructuring Plans?

The past 12 months have been tough for Standard Chartered (LSE: STAN). The Asia-focused bank has struggled as credit conditions across Asia have deteriorated, loan impairments have increased and growth has slowed.

Standard is already reeling from a rising number of defaults across Asia. Total impairment charges — or bad debts during the third quarter — jumped to $539m, more than double the figure reported for the same period a year ago. Total impairments for the year to the end of the third quarter hit $1.6bn and operating profit for the quarter fell 16% year on year. 

However, the bank has now embarked on an ambitious cost-cutting drive in order to return to growth. As part of this drive, the company is exiting some countries and businesses while moving to a more digital footing, like many of its peers.

About 2,000 jobs have been cut in the past three months, as the bank has sold operations in non-core cities. These disposals include the bank’s consumer finance arms in China, Hong Kong, Germany and South Korea, its retail bank in Lebanon and private banking division in Geneva.

And today Standard has announced further cuts and job losses.  In total, the bank is planning $400m of cost cuts over the next 12 months, 80 to 100 branch closures and 2,000 more job losses.

Additionally, as part of the plan, Standard announced today that it was closing its small, institutional equities business, which has been loss-making for some time. It’s estimated that exiting this business alone will save the bank $100m next year. 

Will cuts be enough?

So far, Standard’s plans to slash costs have been well received by investors and analysts alike. It’s easy to see why, as the bank is now making changes that should have taken place a long time ago. Exiting the loss-making equities business is a key example. 

Still, there are two big black clouds overhanging the bank. 

Firstly, there’s the state of Asia’s economy and the possibility of further hefty loan impairments, which could put a dent in the bank’s capital cushion and mitigate cost cutting efforts. For example, even though 2015 has only just started, one Chinese real estate developer has already collapsed this year. Further bankruptcies could have a ripple effect across the region causing a credit crunch.

Secondly, Standard is being watched closely by regulators, who last year fined the bank $300m for failing to fix problems identified in 2012 related to money laundering. Additional compliance and legal costs will dent the bank’s profit margins.

Time to buy 

There’s no denying that Standard has disappointed over the past 12 months, but the bank’s plan to cut costs and exit loss-making businesses is a step in the right direction. 

However, after a year of disappointments it will take some time for management to regain the trust of investors and the possibility of a credit crisis in Asia is worrying. For that reason, it might be sensible to avoid the bank for the time being.