Standard Chartered CEO Commits to Commodities Financing

Standard Chartered Plc Chief Executive Officer Peter Sands said financing commodity trade will remain an essential part of its business even after falling prices worldwide helped curb a decade of profit growth.

The company is tightening lending criteria to reduce risk from its $61 billion of credit exposure to commodities, exacerbated by slowing economies in India, China and Korea, the bank’s management said today after a three-day meeting with some of its shareholders in Hong Kong.

“It is not an option to ask if we are in commodities or not -- they’re such an integral part of the business,” Deputy CEO Mike Rees said on a call with reporters. “This isn’t about what some other banks are doing. Commodities are part of the DNA of the bank, we are a trade-finance bank.”

Sands, 52, and Chairman John Peace are under pressure from investors after presiding over a 30 percent share-price decline this year, the worst-performing U.K. bank. London-based Standard Chartered, which makes about three-quarters of its earnings in Asia, is closing businesses and cutting jobs in Korea, China and the Middle East after reporting a drop in earnings this year and the last, ending more than a decade of growth. Today, Sands declined to say when the bank will return to profit growth.

Standard Chartered’s stock rose 1.1 percent to 956.8 pence at 1:59 p.m. in London. It has a market value of about 24 billion pounds ($38 billion), about a fifth less than its book value.

The Bloomberg Commodity Index is down almost 17 percent in the past two years amid growing surpluses, slowing economic growth in China and a surging dollar.

Conduct Issues

“We had very constructive discussions with our investors, how we’re getting the bank back on a trajectory of growth and how we’re going to improve returns,” Sands said of the shareholder meetings. He’s “committed to leading the bank” and pledged “tangible progress in 2015.”

The lender is “comfortable” with its level of provisions for bad conduct and is spending 50 percent more on compliance than a year ago, Sands said. Yesterday, banks including HSBC Holdings Plc and Citigroup Inc. paid $4.3 billion in fines to regulators for rigging foreign-exchange markets.

An independent monitor oversees Standard Chartered to ensure it complies with sanctions and anti-money laundering rules, installed in 2012 after it breached a U.S. ban on transactions in Iran. In August, the lender reached an agreement to pay $300 million for failing to flag suspicious transactions as required under the settlement with New York’s banking regulator.

Bad Loans

The bank said today impairments on loans in its consumer business were “flat” in the nine months to September from a year earlier. The 12-month moving average for non-performing loan formation fell about 10 percent in the third quarter, the bank said in a presentation.

The details “present a material challenge to received wisdom on both the direction and severity of key credit metrics,” said Ian Gordon, an analyst at Investec Plc in London. The data “points to a materially better credit outlook than many investors have assumed.”

The bank reported a 16 percent drop in third-quarter profit last month amid higher loan impairments, falling commodity prices and faltering economic growth across Asia. The bank finances about 6 percent of world trade, Rees said on the call today.

Exit Plans

The bank forecasts next year’s profit will be reduced by about $120 million and income by $350 million as a result of exiting non-strategic businesses, according to the presentation. The lender plans to close its consumer finance and savings bank in Korea, consumer finance businesses in Hong Kong and China, and run down its small and medium-sized lending business in the United Arab Emirates.

Earlier this week, management said it’s targeting $400 million of “productivity improvements,” which entails closing as many as 100 branches, about 8 percent of its outlets, and reducing employment. Sands said they will largely be through “natural attrition,” without specifying a number, on the call today.

The lender is targeting 10 percent growth in assets at its private bank and wealth divisions, according to another presentation this week.

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