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Standard Chartered CEO Faces ‘Pivotal’ Test as Profit Drops

Standard Chartered Plc (STAN) Chief Executive Officer Peter Sands, facing reports of disgruntled investors, is set to post the bank’s second straight drop in first-half profit today.

The London-based lender, which makes about three-quarters of its earnings in Asia, may report first-half adjusted pretax profit of about $3.3 billion, down 20 percent from $4.1 billion a year earlier, based on the average of 11 estimates in a Bloomberg survey. The bank flagged the profit drop on June 26 as Sands called the first half “disappointing,” sending the shares sliding.

Sands, 52, the longest-serving CEO of any major European bank, is under pressure to show he can steer Standard Chartered through slowing economic growth in Asia after more than a decade of expansion. The Financial Times said last month that some investors had called for his ouster, prompting Standard Chartered’s board to say it was united in its support of Sands.

“Rightly or wrongly, there are people questioning Peter Sands,” said Nick Brind, a London-based money manager at Polar Capital Holdings Plc, who helps oversee about $13.7 billion and sold his shares in the bank more than a year ago. “Standard Chartered are in the naughty box at the moment.”

The bank is scheduled to release earnings at 9:15 a.m. in London.

Share Slide

Standard Chartered’s shares were little changed at 1,216 pence at 8:12 a.m. in London. They have dropped about 11 percent this year, making the bank the second-worst performer among Britain’s five largest lenders, trailing Barclays Plc. (BARC)

The lender forecast in June that full-year profit, excluding goodwill impairments and swings in the value of the bank’s own debt, will be lower than 2013. Sands has said Standard Chartered plans to return to profit growth in the second half of 2014, compared with the year-earlier period. The bank last reported an increase in semi-annual pretax profit in the first six months of 2012.

“Results day will be pivotal in delivering confidence” that Sands can meet that target, Deutsche Bank analysts led by Jason Napier wrote on July 17. They have a hold recommendation on the shares.

‘Under Pressure’

The FT reported on July 23 that Chairman John Peace has been urged to search for a new CEO, with Temasek Holdings Pte, the Singaporean state-owned investment company that owns about 18 percent of the bank, pressing for a clearer succession plan, citing people it didn’t identify. Temasek declined to comment, as did Aberdeen Asset Management Plc (ADN), which holds 7.7 percent of Standard Chartered and was said by the FT to seek Sands’s ouster.

Sands is “under pressure,” Arun Melmane, an analyst at Canaccord Genuity Corp. in London, told Bloomberg Television’s Mark Barton in an interview today. “It’s for investors to push for or not” whether he’s able to stay in his job in 2014.

The bank saw revenue of $10.9 billion in Asia Pacific last year, down from $11.4 billion a year earlier, as expansion weakened in China. The bank has also been hurt as clients move away from trading interest-rate and foreign-exchange products.

India, Korea

“I actually don’t think management is the issue,” said Joe Dickerson, an analyst at Jefferies International Ltd. who rates the stock underperform. “The second half will be better for Standard Chartered on the expectation that financial-markets revenue will improve.”

Sands said in June that growing markets including China and Africa were offset by “weaker performance” in nations such as India, Korea and Singapore. Standard Chartered took a $1 billion writedown on its Korean business last year, helping to end more than a decade of earnings growth.

The International Monetary Fund revised its July forecast for emerging market economic growth this year to 4.6 percent, compared with an April forecast for 4.9 percent. China’s economy is seen growing 7.4 percent this year, less than the 7.5 percent previously forecast, the IMF said July 24.

“Banks largely reflect the economies they are in,” said Brind. “It’s going to take a little bit of time before they can tighten things up.”

HSBC Holdings Plc, the largest foreign bank in China by assets as well as Europe’s largest bank, this week reported a 12 percent drop in pretax profit, hurt by its securities unit. Barclays posted a 50 percent drop in first-half investment bank profit last week as fewer clients traded in cash equities, rates and currencies.

To contact the reporter on this story: Richard Partington in London at rpartington@bloomberg.net

To contact the editors responsible for this story: Simone Meier at smeier@bloomberg.net Keith Campbell

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