Standard Chartered CEO Record Cuts Aim to Silence Critics

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Standard Chartered CEO Peter Sands
Peter Sands, Chief Executive Officer of Standard Chartered Plc, is targeting about $400 million of cost savings this year as he tries to reverse profit declines. Photographer: Simon Dawson/Bloomberg

Standard Chartered Plc Chief Executive Officer Peter Sands unleashed the biggest round of job cuts in his eight-year tenure at the U.K. bank as he seeks to persuade critics he can stem a two-year drop in earnings.

Sands, 53, yesterday announced a plan to cut about $400 million by eliminating equities trading and slashing 4,000 consumer-bank jobs. The shares have dropped 26 percent over the past 12 months, putting Standard Chartered among the worst performers in the 45-member Bloomberg Europe 500 Banks index.

“This may be management’s last chance to convince investors,” said Chirantan Barua, a London-based analyst at Sanford C. Bernstein, who has an underperform rating on Standard Chartered. “They are doing things at the margin, this isn’t going to improve earnings or boost capital radically, so the fundamental pressures on the bank remain.”

Slowing economic growth in Asia and rising costs for bad loans ended a decade of earnings growth at Standard Chartered in 2013. After cutting the full-year profit forecast for a third time, Sands met with shareholders in Hong Kong in November, pledging to cut costs and focus on wealth management.

The shares fell 1.9 percent to 952.2 pence at 9:13 a.m. in London. The stock has declined in both of the past two years, paring the market value to 23.5 billion pounds ($35.6 billion), about 20 percent less than the bank’s book value, which measures what would be left for shareholders if all assets were sold at current values and all liabilities paid off.

Job Cuts

While the share slide eroded about 9 billion pounds in market value over the past year, Martin Gilbert, CEO of the bank’s second-largest investor Aberdeen Asset Management Plc, said last month the money manager continues to support Sands.

Others remain skeptical.

The cuts “do not fix the issues facing Standard Chartered,” said Arun Melmane, an analyst at Canaccord Genuity Corp. in London with a sell rating on the shares. “2015 is likely to be a year of transformation.”

Standard Chartered has eliminated about 2,000 consumer-banking jobs in the past three months, and plans to cut that many again in 2015, it said in the statement yesterday. That’s the biggest round of cuts since Sands took over in 2006.

The bank shut 22 branches in the second half of 2014 as part of a previously announced target of 80 to 100 closings, which will help cut costs by about $200 million in 2015. It’s also exiting the unprofitable cash equities, equity capital market and equity research operations, which will result in about 200 job losses and save $100 million more in 2016.

‘Strategic Mistake’

“The fact that they are shutting it down reflects a strategic mistake that they made, if you are generous,” said David Fergusson, chief investment officer of Singapore-based Woodside Holdings Investment Management Pte, who owns the stock. “Despite the fact that they’ve got a very good branch network across Asia, they cannot get money out of the equities business.”

Most of the jobs cut from the equities withdrawal are in Asia, a spokesman for Standard Chartered said, asking not to be named. Of those, Hong Kong had the largest number, with jobs in Singapore, India, South Korea and Indonesia also affected, he said. The bank will keep convertible bonds and equity derivatives businesses, and economic and fixed-income research.

The firm will reduce its headcount in Malaysia by 11 percent this quarter, with cuts stretching across areas including marketing and consumer operations, according to a memo obtained by Bloomberg News. Standard Chartered declined to comment on the document or the number of employees involved. More than 900 of Standard Chartered’s more than 1,600 branches are in Asia, according to its website.

Standard Chartered reiterated its plans to exit or restructure “non-core” operations. The remaining $200 million of cost savings targeted this year will come from “other client segments, product groups and global functions,” the bank said, without giving details.

“Investors should feel reassured that Standard Chartered is moving forward on its cost-cutting measures,” said Edmond Law, a Hong Kong-based analyst at UOB-Kay Hian (Hong Kong) Ltd. “It’s the right direction to focus on its core business.”

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