South Korea, where Standard Chartered Plc has written down $1 billion from its domestic unit, will “remain challenged” in the near term, said Jaspal Bindra, head of the lender’s Asian business.
Return on equity in the South Korean banking industry had fallen to about 3 percent, compared with a “mid-teens” rate in 2005 when Standard Chartered acquired its main business in the country, Bindra said in an interview from Hong Kong with Bloomberg Television’s Angie Lau today.
“Clearly there’s been deterioration,” Bindra said. “It’s the demographics, it’s the household debt which is very high in Korea.”
The lender, which makes three-quarters of its earnings in Asia, said yesterday that pretax profit declined 12 percent to $6.06 billion for 2013, including the previously announced writedown of its Korean unit. The London-based bank raised its dividend 2 percent to 86 cents a share.
Chief Executive Officer Peter Sands said on a conference call following the earnings report that the company has a “very strong balance sheet.” Across the firm, Standard Chartered reduced its bonus pool 15 percent to 772 million pounds ($1.3 billion) and said it paid about twice as much in dividends as it did in bonuses. The bank forecast “modest growth” in 2014, though revenue and profit in the first half will be “challenged.”
The company said its core Tier 1 capital ratio, a measure of financial strength, rose to 11.8 percent compared with 11.7 percent a year earlier. Under full Basel III regulations, the ratio is 11.2 percent, Standard Chartered said.
The bank’s shares in Hong Kong slipped 1.2 percent to HK$162.50 as of 9:48 a.m. local time, after falling 2.1 percent in London yesterday. The London stock lost 32 percent in the past 12 months, the most among Britain’s five largest banks.
“The near-term outlook is cautious, which gives investors on the fence little reason to warm” to the shares, London-based Deutsche Bank AG analysts Jason Napier and David Lock wrote in a note to clients yesterday.
Standard Chartered may sell its consumer finance unit in Hong Kong, Sands told reporters on the conference call. He said Nov. 11 the lender will review its businesses to cut back or withdraw from less profitable markets. The bank has said it’s looking at options to divest its consumer-banking business in Lebanon and plans to sell its Geneva-based private bank.
Korean income from consumer banking fell 12 percent, while the firm’s business in the country lost $12 million excluding the impairment charge. Sands last year suspended a target for revenue growth of at least 10 percent after the Korean writedown, which was prompted by an increase in loan impairments related to the country’s personal debt rehabilitation plan.
“We’re going to right-size and shrink” the Korea business, Bindra said. “We’re selling our two consumer-finance businesses, which is a small part of our consumer banking in Korea, but we’re also re-aligning our exposures more selectively. We’re trying to put the capital to better use.”
The lender said in January that it’s merging its consumer and corporate-banking business to cut costs, as Finance Director Richard Meddings said he would leave and the head of corporate banking, Mike Rees, was named deputy CEO.
Sands and Rees will lead a bank facing rising regulatory costs after it was fined $667 million by the U.S. in 2012 for breaches of U.S. sanctions on Iran. Meddings and Steve Bertamini, head of the consumer-banking unit that oversaw the Korean business, will step down from the board and leave the company in the first half.
Corporate and consumer banking will be integrated and organized into three segments -- corporate and institutional clients, commercial and private-banking clients and retail customers. Corporate and institutional clients accounted for about 60 percent of the group’s 2012 revenue.
Standard Chartered’s pay reductions contrast with Barclays Plc, whose shares slid on Feb. 11 after CEO Antony Jenkins said employee bonuses rose to 2.4 billion pounds last year from 2.17 billion pounds a year earlier. HSBC Holdings Plc, Europe’s largest lender, increased bonuses to 2.4 billion pounds from 2.2 billion pounds.