Standard Chartered Plc may have many failings. At least it has a leader.
The London-based emerging markets bank run by Bill Winters hasn’t had the best of years, and the outlook, with so much exposure to virus-affected Hong Kong, is looking grim.
It does, though, have a stable team, led by a CEO about to complete five years in the job. That puts the bank in a better place than traditional rival HSBC Holdings Plc, which is undergoing a radical overhaul with 35,000 job cuts under caretaker CEO Noel Quinn.
StanChart posted full-year underlying pretax profit of $4.2 billion, slightly behind the consensus forecast of $4.3 billion, and announced a $500 million buy-back. That was less than the $1 billion analysts had expected.
Sweetening up shareholders
The bank salved the disappointment by hinting that it will return more capital to shareholders after completing the sale of its stake in Indonesia’s PT Bank Permata. There’s no share buy-back in the works at HSBC.
Standard Chartered said that the coronavirus outbreak will delay its target of a 10 per cent return on tangible equity by 2021. The epidemic has led to a shutdown of factories in China and wide-ranging travel disruption that has interrupted global trade. Its warning mirrors that from HSBC, which said last week that the outbreak could lead to as much as $600 million in additional loan losses if it continues into the second-half of the year.
Having Winters at the helm gives StanChart an edge — and not just over HSBC. Several other European banks have new or no heads. Earlier this month, Credit Suisse Group AG named a new CEO after ousting Tidjane Thiam over a spying scandal; UBS Group AG poached ING Groep NV Chief executive Ralph Hamers; Barclays is looking for a replacement for Jes Staley, who’s preparing to retire from the bank next year amid allegations of links to sex offender Jeffrey Epstein.
Winters hasn’t exactly had a chummy relationship with investors. He took a pay cut after shareholders complained about his high pension allowance last year, a revolt that he initially criticised as “immature and unhelpful”. To put that painful episode behind him, the CEO will need to offer a meaningful increase in shareholder returns from last year’s 6.4 per cent, two percentage points lower than HSBC.
Unfortunately, this is unlikely to be the year. As with HSBC, Hong Kong is StanChart’s single biggest market. Before the impact of last year’s antigovernment protests could fade, the coronavirus has arrived to threaten the economy again. The outbreak will also hurt Singapore, another key market.
Quite the legacy
All the same, if and when he leaves Winters will in all likelihood hand over a more solid franchise than he received. When he joined in June 2015, StanChart was neck deep in bad corporate loans in India and Indonesia.
That problem is in the rear-view mirror now. Even though the loan loss rate ticked slightly higher last year, it was just over half what it was two years ago. While asset quality pressures may rebuild because of the supply-chain disruption from the coronavirus, at least the bank’s ability to endure as an independent institution is no longer in doubt.
Having made a mark as a digital lender in underbanked Africa, StanChart is now in the fray to open an online-only bank in Hong Kong. Given the ageing demographics of its existing client base in the former British colony, going after more millennials and Generation Z customers may be a smart move.
Asia is the biggest profit pool for banks worldwide. But growth is slowing and competition from fintech is on the rise. With global interest rates once again going limp, there’s little hope for boosting profit margins. While Winters can perhaps keep a tight leash on costs, he may not be able to pare them any further.
Having pushed back the 10 per cent return on equity target to beyond next year, even juicy buy-backs won’t keep investors from souring on the one CEO who — to borrow from a StanChart advertising tagline — seems to be here for good. Or as close to that as it gets in European banking nowadays.