Here’s Why Standard Chartered PLC May Double In Value

Time is running out for Peter Sands, CEO of Standard Chartered (LSE: STAN).

Unnerved investors are asking for changes but, even under new management, I think the bank’s shares would struggle to appreciate significantly next year — unless, that is, a change of leadership is combined with bold corporate action. 

So, how can the shares double in value over time? 

There are signs that Standard Chartered could surprise savvy investors in the long run: its shares are rather cheap, but its restructuring will likely take years to yield dividends, in my view. 

Standard Chartered On The Radar 

Standard Chartered’s shares trade at 900p; it’s easy to forget they changed hands at 1,800p in early 2013! The shares have lost more than 30% of value since the beginning of the year.

So, what has happened since?  

In no particular order: a) the bank has been accused of hiding $250bn worth of illegal transactions with Iranian banks; b) it has recently emerged it would face years of scrutiny by US prosecutors, which may lead to severe penalties; c) it has issued a string of profit warnings as the emerging market slowdown is posing more than one question to its business model; and d) the payout ratio has come under scrutiny.

There are signs, however, that the bank is doing something right. 

Positive Signs

It emerged on Tuesday that Standard had agreed the sale of its Hong Kong and Shenzhen consumer finance units, in a move that signals the bank’s intention to slim down. The bank has reportedly agreed to sell these assets for about $700 million.

Large disposals are the way forward. Proceeds can be used to shore up the the bank’s capital position, and will likely support the bank’s dividend policy, but may also be used to fund shareholder-friendly activity, in my view. 

Elsewhere, stress test results from the Bank of England, which were released on Tuesday, showed a “minimum stressed ratio” before the impact of strategic management actions at 7.1%, which rises to 8.1% once the impact of ‘strategic’ management actions is included. Investors were not impressed, but Standard ranked just behind HSBC in the UK banking world. 

Furthermore, Standard announced last week the formation of a “Board Financial Crime Risk Committee” (BFCRC), which will have board-level oversight of the bank’s financial crime compliance programme.

From 1 January, BFCRC will assume responsibility for procedures, systems and controls for anti-money laundering, sanctions compliance, and the prevention of bribery, corruption and tax crime.

Corporate governance is key when it comes to value creation at Standard, and shareholders know that. A price target of 1,800p is not incredibly high if growth in emerging market is restored and the bank gets its priorities right. 

Time’s running out, Mr Sands…