Is Standard Chartered PLC A Turnaround Play?

Emerging market focused bank Standard Chartered (LSE: STAN) is a bank in crisis. The number of defaults across Asia are rising and Standard’s capital reserves are falling. So are the bank’s profits.

What’s more, regulators have their sights trained on the bank and legal costs are rising, yet another factor that’s holding back Standard’s growth and depressing its capital cushion. 

Making changes 

Management has recently started to take these threats to the bank’s stability seriously. Indeed, the group is now looking to strip out costs of $400m per annum, sell businesses that no longer fit the bank’s strategic vision and divest businesses that require a higher level of regulatory oversight.

For example, the bank has reduced its exposure to vulnerable clients in Nigeria and is conducting a client-by-client review of exposure to rising US interest rates.

On top of these business ‘adjustments’, the bank is slashing up to 4,000 jobs and closing loss-making businesses. These disposals include the bank’s consumer finance arms in China, Hong Kong, Germany and South Korea. Standard’s retail bank in Lebanon and private banking division in Geneva have also been shut down.

Additionally, Standard has started the closure of 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.

New management

On top of these business changes, Standard is also reportedly seeking a new CEO. The current CEO, Peter Sands, is expected to step down by the end of the year. However, it’s not yet clear who will step into the breach to replace Sands but his successor will have to be a turnaround expert.

Sands has been criticised for not moving fast enough over the past few years as Standard’s operating environment changed. Specifically, Sands has been accused of failing to recognise the risks facing the bank fast enough.

And there’s now talk that António Horta-Osório, chief executive of Lloyds Banking Group, could be drafted in to rescue the emerging markets specialist. Although, as António has just laid out a new three-year plan for Lloyds, many analysts have stated that’s it’s unlikely that he will jump ship any time soon.  

Wealthy backers

Standard is trying to steady the ship and turn things around. Luckily, the bank has some wealthy and well-known backers who are willing to support it in its efforts.

In particular, Tweedy, Browne Partners — one of the world’s oldest and most respected fund managers — and Aberdeen Asset Management have both stated their support for the bank recently by acquiring large stakes. 

Martin Gilbert, Chief Executive Officer of Aberdeen Asset Management, came out only a few days ago to say that Standard Chartered is a “very good bank”. Aberdeen has acquired around 10% of Standard’s outstanding shares. 

Dividend cut

So overall, Standard is trying to turn itself around and the bank has some wealthy backers which believe that the turnaround could work out. But only you can decide if Standard is a good fit for your portfolio.