Standard Chartered May Take Commodities Provision: Credit Suisse

Standard Chartered Plc may need as much as $4.4 billion of additional capital to cover losses on its commodities book this year amid a slump in global prices, Credit Suisse Group AG said.

The bank faces an increase in risk-weighted assets of $24 billion “as the riskiness of the commodities portfolio is re-assessed,” Credit Suisse analysts led by Carla Antunes-Silva, with an underperform recommendation on shares, wrote in a note. The $4.4 billion would include $2.6 billion in pretax provisioning charges under an adverse scenario, they said.

Standard Chartered said last month financing commodity trading will remain an essential part of its business, even after falling prices worldwide helped curb a decade of profit growth. Still, the bank is tightening lending criteria to mitigate risk from its $61 billion of credit exposure to commodities, exacerbated by slowing economies in India, China and Korea. Chief Executive Officer Peter Sands, 53, this week announced 4,000 job cuts to reverse two years of sliding earnings amid a 28 percent slump in shares over the past year.

“The further provisioning cost we estimate in this report from the commodities’ exposure could exert significant pressure on an already stretched capital position at Standard Chartered and could warrant capital measures such as further equity raising and/or imminent dividend reductions,” the analysts said. “If commodity prices remain this weak, or fall further, we would not dismiss a possible rights issue, dividend cut.”

The Bloomberg Commodity Index is down about 18 percent in the past year amid growing surpluses, slowing economic growth and a surging dollar. Oil is trading below $45 a barrel, the lowest in more than 5 years.

Standard Chartered reported a 16 percent drop in third-quarter profit amid higher loan impairments, falling commodity prices and faltering economic growth across Asia. The bank is scheduled to release full-year results on March 4.

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