Credit Suisse Shows Peril of Winters’s Capital Bet: Edward Evans
Tidjane Thiam is making the safe call. Bill Winters at Standard Chartered is making a brave and potentially costly one.
Thiam looks like he’s getting the pain over quickly for Credit Suisse shareholders by raising capital in his first big move since becoming CEO in June. The Financial Times reports he will seek to raise more than $5 billion. That should give him plenty of headroom to meet any hefty restructuring charges as he reshapes the lender.
He can limit investor suffering because Credit Suisse is one of the few investment banks in Europe trading higher than its tangible book value. The shares change hands at a 17 percent premium, compared with Deutsche Bank’s 40 percent discount, according to data compiled by Bloomberg.
Contrast Thiam with Winters, who took over at Standard Chartered at the same time. Winters hasn’t raised capital so far, even though some analysts estimate he faces a $10 billion shortfall. The bank is being buffeted by loan losses in Asia amid falling commodity prices.
That decision -- or lack of one -- will cost his shareholders dear if he’s forced eventually to follow Thiam’s lead. Standard Chartered’s market value has tumbled from $43 billion in June to about $30 billion now, making any fundraising more dilutive for investors. ($10 billion is a smaller proportion of $43 billion than $30 billion.)
With Standard Chartered shares languishing at a third less than its tangible book value, Winters may feel it’s worth gambling by waiting for them to rally. Its value implies loan losses akin to the 1997 Asian financial crisis, according to Goldman Sachs analysts -- suggesting the sell-off may have been overdone. The lender’s market value has already climbed back from a low point of $25 billion at the end of September.
Winters also has options for plugging his capital gap without tapping shareholders. He could sell assets. Goldman suggests the retail banking operations outside Hong Kong, Singapore and South Korea could go, as well as stakes in China Bohai and Bank Permata.
Yet if the recent mini-recovery shudders to a halt or asset sales disappoint -- or regulators push him to raise capital immediately -- Winters could still end up regretting his decision to shun a fundraising. As Thiam shows, if you’re going to inflict pain on shareholders it’s better to do it straightaway.
(This column does not necessarily reflect the opinion of Bloomberg LP and its owners.)
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