Bill Winters will probably bring little cheer to investors when he reports his first earnings since taking the helm of Standard Chartered Plc, with analysts forecasting a capital gap of as much as $10 billion.
Winters, who became chief executive officer on June 10, will probably say on Wednesday that first-half revenue fell 7 percent to $8.8 billion, the average estimate of seven analysts in a Bloomberg survey shows. Loan losses may have jumped 10 percent to $1.1 billion, according to analysts at Barclays Plc.
“We don’t expect the results to be particularly encouraging with revenues likely to still be under pressure, credit quality another area of concern and little capital progression,” said Rohith Chandra-Rajan, an analyst at Barclays with an overweight rating on the shares. “Given our concerns on credit quality, we expect the company to raise capital.”
Winters, 53, a former co-head of JPMorgan Chase & Co.’s investment bank, is under pressure to reverse a two-year slide in earnings and a stock slump that cost predecessor Peter Sands his job. With slumping commodity prices weighing on some Asian clients and rising bad loans and legal bills crimping profit, the new CEO may struggle to restore investor confidence.
British lenders are seeking ways to shore up their capital buffers as regulators prepare to conduct a second round of stress tests, focusing on developing markets and commodities exposure. Standard Chartered may have to plug a capital shortfall of between $5 billion and $10 billion, according to analysts at Barclays and Sanford C. Bernstein Ltd.
So far, Winters hasn’t been able to stem a slump in shares, which eroded a fifth of the company’s market value over the past year. HSBC Holdings Plc, which also generates most of its earnings in Asia, has slipped about 7 percent in that period.
“We are very pro-Bill -- he’s good, but it is still early days and he’s got a big job there,” said Martin Gilbert, CEO of Aberdeen Asset Management Plc, which is the bank’s second-largest shareholder. “People are surprised that a banker of his caliber accepted the job, and we are pleased he did.”
Under Sands, the bank ruled out a capital increase, instead focusing on 4,000 job cuts to help save about $1.8 billion through 2017. The bank’s common equity Tier 1 ratio, a measure of high-quality capital, was 10.7 percent at the end of 2014, lagging a target of between 11 percent and 12 percent.
That prompted some analysts to forecast a dividend cut.
To mitigate capital pressures an “obvious area is the dividend policy, which we believe will be a focus of Mr. Winters’ attention,” said Joseph Dickerson, an analyst at Jefferies International Ltd., who has an underperform rating on the stock. “We now incorporate a halving of the dividend over the next three years” to 42 cents a share, he said.
Standard Chartered may also continue to cut its exposure to risky commodities to offset the impact of a global rout. The bank trimmed $6 billion from its commodity book to leave $55 billion in the second half of 2014, according to its annual report. That share may decline to below $50 billion in the first six months of 2015, according to Bernstein.
“We expect questions to management on forward-looking credit indicators, and an update on continued efforts to de-risk the loan book particularly given recent commodity price movements,” David Lock, a London-based analyst for Deutsche Bank AG, said in a note. Lock forecasts loan impairments will rise to about $1 billion in the six-month period.
HSBC said on Monday that first-half profit rose 10 percent to $13.6 billion, beating analyst estimates.
Winters has said his top executives will develop a plan by year-end to “address the future performance of the group.”
The new CEO had to rebuild his management team following the departure of senior executives including Asia CEO Jaspal Bindra and Viswanathan Shankar, head of Europe, Middle East, Africa and Americas. The company will also have to recruit a new chairman as John Peace prepares to step down next year.
Barclays, Credit Suisse Group AG and Deutsche Bank have also replaced their CEOs this year as Europe’s largest banks seek ways to boost revenue amid rising costs.
“We note the continuing loss of key talent from the organization which could make a return to growth that much more challenging to deliver,” said Ian Gordon, an analyst at Investec Plc in London, who has a hold rating on the shares.
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