Photographer: Chris Ratcliffe/Bloomberg

Standard Chartered Drops After First Annual Loss Since 1989

  • Loan impairments almost double to $4 billion, highest ever
  • CEO Winters says performance to remain `subdued' in 2016

Bill Winters took more “painful” steps to turn around Standard Chartered Plc as the bank posted its first annual loss since 1989. The shares fell.

The Asia-focused lender reported a pretax loss of $1.5 billion in 2015, down from profit of $4.2 billion a year earlier, as revenue missed estimates and loan impairments almost doubled to the highest in the bank’s history. The company wrote down the value of its business in Thailand, said it was reviewing its operations in Indonesia, further cut its commodity exposure and eliminated all executives’ bonuses.

Bill Winters
Bill Winters
Photographer: Jason Alden/Bloomberg

“Our 2015 performance was poor, and in many ways unacceptable” with the drop in income “precipitous,” Winters, the company’s chief executive officer said on a call with reporters Tuesday. 2016 “will be another difficult year, no doubt.”

Winters, 54, is attempting to unwind the damage caused by predecessor Peter Sands’ revenue-led expansion across emerging markets, which left the bank riddled with bad loans when the commodity market crashed and growth stalled from China to India. The company set a target of a 10 percent return on equity by 2020, up from negative 0.4 percent in 2015.

Decent Business?

“The results were never going to be good, I’m afraid,” said Hugh Young, Asia managing director of Aberdeen Asset Management Plc, one of Standard Chartered’s largest shareholders. “The most important point is whether Bill and team are doing the right things and tidying up and whether there’s a decent business left at the end of it. I think the answer to both is in the affirmative.”

The stock dropped 2.5 percent to 425.45 pence at 12:35 p.m. in London, increasing the decline this year to 25 percent. The shares trimmed an earlier plunge which reached 12 percent shortly after the results were released.

“StanChart results are weak across lines” with “management prioritizing actions that support long-term turnaround at near-term cost,” said Raul Sinha, an analyst at JPMorgan Chase & Co. with an overweight rating on the stock. “Asset shrinkage and weakness in commodity prices” weighed on revenue.

‘Painful’ Steps

Revenue declined 15 percent to $15.4 billion, falling short of analysts’ estimates of $15.9 billion in a Bloomberg survey. Loan impairments jumped to $4 billion from $2.1 billion in 2014. When executives look at the 2015 results, it “rips at our souls,” Winters said on a call with analysts.

The bank took a $1.8 billion restructuring charge, part of the $3 billion in such charges it flagged in November. That included a writedown of about $1 billion of a portfolio it’s deemed too risky and seeking to sell in order to shed $20 billion of risk-weighted assets. Standard Chartered will “continue to take necessary, sometimes painful steps to improve returns,” the company said in a presentation to investors.

The bank is “in discussions” regarding its presence in Indonesia as the government changes regulations on foreign-owned lenders in the country, Winters said. The company recorded a $126 million goodwill impairment on its operations in Thailand, cut its exposure to China, and said it’s continuing to restructure Korea, where returns “remain challenging.” Regulatory costs climbed 40 percent to $1.01 billion.

Dividend Return

“We are dealing with our expense problem as aggressively as anyone in the industry,” Winters said on the call. The bank expects to restart paying a dividend this year after canceling the payout in the second half of 2015 to save money, Benjamin Hung, regional CEO for Greater China and North Asia, said at briefing with reporters in Hong Kong.

While the bank didn’t call out any major fines in its results, it might have to pay U.S. authorities a further $2 billion to settle regulatory probes into sanctions violations, according to Sanford C. Bernstein Ltd. analyst Chirantan Barua.

The bank reduced its exposure to commodities by 28 percent to $39.6 billion, and cut exposure to oil and gas producers, which have been suffering from a record slump in energy prices, by 26 percent to $9.6 billion.

Excluding some one-time items, pretax profit was $834 million. That fell short of the average estimate for profit of $1.37 billion from 20 analysts surveyed by Bloomberg. Standard Chartered said its common equity Tier 1 capital ratio, a measure of financial strength, fell to 12.6 percent from 13.1 percent as of Sept. 30. 

Since June, Winters has raised $5.1 billion from investors, scrapped the dividend and announced plans to cut 15,000 jobs to help save $2.9 billion by 2018, while seeking to restructure or exit $100 billion of risky assets.

The CEO has been shrinking the lender’s balance sheet after rapid growth under Sands, who was replaced last year after eight years as CEO. Total assets at the lender, which focuses on Asia, the Middle East and Africa, ballooned to a peak of $726 billion at the end of 2014 from $266 billion in 2006, according to data compiled by Bloomberg. The bank had $640 billion of assets at the end of last year, a 12 percent decrease, the results show.

Former executives at the bank could have some of their bonuses “clawed back” in light of irresponsible lending decisions in the past, Winters said on the call with analysts.

“This is not a banking crisis,” Winters told reporters on a conference call. “We are going through a very difficult transition from a period with rapid loan growth with some big concentrated exposures, where we under-emphasized and under-invested in some of the things that drive our core franchise.”

(An earlier version of this story corrected the 2015 return figure.)

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