Update | Standard Chartered pre-tax profit falls 30 per cent, hit by ‘perfect storm’
Pre-tax profit plunges 30 per cent as bank suffers from taxes, impairments, towering capital requirements and squeezed margins
Taxes, impairments, towering capital requirements, squeezed margins - those and more were part of Standard Chartered's picture of the "perfect storm" last year that drove down pre-tax profit at the British-based, Asian-focused bank by 30 per cent to US$4.24 billion.
The result missed analysts' estimates by a lengthy stride.
Former JP Morgan boss Bill Winters, who will replace chief executive Peter Sands in June, will oversee an aggressive slashing of businesses and headcount over the next three years in a drive to save the bank US$1.8 billion.
A consensus of analysts surveyed by Bloomberg had expected a significant but far more modest drop in profit of about 8 per cent to US$5.5 billion. The bank notched US$6.06 billion in pre-tax profit in 2013.
The bank's shares jumped more than 5 per cent in London on Wednesday morning on news that it would pay a full-year dividend of 86 US cents per share, on par with 2013.
"Our performance was disappointing," Jaspal Bindra, the bank's departing Asia chief executive, said in Hong Kong on Wednesday.
But Bindra also called the external conditions a perfect storm and said the painful, often profit-corroding measures to derisk the bank last year would help push it through what had become a turbulent restructuring process.
Restructuring has been costly. A new tax levy in Britain and the general cost of reorienting the bank to a riskier global environment accounted for about half of the US$10.74 billion in operating expenses. The figure was up 5 per cent from 2013.
Among the more worrying signs was a swift jump in impairment losses on loans to US$2.14 billion, an increase of 32 per cent. Impairments in retail banking constituted about 40 per cent of that, while the rest was logged in corporate, institutional and commercial businesses.
In Hong Kong, Taiwan and mainland China, impairments rose 94 per cent, reflecting mainland China's slowing economy and a deteriorating credit environment. Profit for the greater China region fell 10 per cent.
The bank also wrote down its troubled South Korean retail business by US$726 million.
Sands, who announced after months of speculation that he will step down in June, said in a statement the bank had taken on the wrong clients at the wrong time. "Some of the decisions we took in the past look less good now than they did at the time," he said. "With hindsight, there were clients and situations we should have avoided."
Sands, Bindra, as well as and chairman John Peace in 2016, will all exit the bank but their defensive strategy to cut inefficiency and lower costs will live on when Winters takes the reins.
Under Sands' direction in the second half of last year, the bank said it would scrap its cash equities and research divisions and cut 4,000 jobs worldwide in its retail banking business. It hoped to save US$400 million in two years.
Those efforts will be redoubled under Winters. The bank said it would now target cuts that would save US$1.8 billion over the next three years while also lifting its core tier-1 equity from 10.7 per cent to 11 to 12 per cent by 2018. That did not rule out the sale of its strategic investments in Agricultural Bank of China and China Bohai Bank.
Asked what businesses Standard Chartered would review for the chopping block, Bindra said: "Everything - the whole business is under review."
Echoing rival HSBC Holdings, which reported a 17 per cent drop in pre-tax profit last week, Standard Chartered lowered its target for return on equity in the medium term to greater than 10 per cent. The return was 7.8 per cent last year.
