Standard Chartered Bank

Standard Chartered to exit equity derivatives and convertible bonds business

The British bank follows January cash equities exit with closure of equities derivatives

PUBLISHED : Monday, 26 October, 2015, 8:28am
UPDATED : Monday, 26 October, 2015, 6:42pm

Standard Chartered said on Monday that it will shutter its equity derivatives and convertible bonds businesses, the latest move under its new chief executive to pare down costs.

In January, the bank announced its exit from institutional cash equities, equity research and equity capital markets businesses and it has promised to review all businesses with poor returns.

Standard Chartered said the latest decision was based on a review of commercial viability and its priority to use capital more efficiently. The exit would be conducted in a phased manner.

Dropping equities derivatives fitted in with a general trend across the industry, where some banks were discontinuing products that supported wealth management operations, said Mark Phin, a London-based analyst at Keefe, Bruyette and Woods.

“The days of having to offer every product for your wealth management business are gone,” Phin said, noting that other banks such as Credit Suisse had made similar cuts.

The days of having to offer every product for your wealth management business are gone
Mark Phin, Keefe, Bruyette and Woods

Analysts earlier this year called the closure of the cash equities business “short-sighted”, considering the bank’s renewed emphasis on private banking and wealth management. Shuttering those units would reduce the offering to private bank clients, some analysts argued.

The bank has pushed back against that notion. Standard Chartered’s head of private banking said in April that the institutional equities business would be outsourced to third parties and that clients would not notice the difference.

Monday’s announcement said the bank’s securities trading services would be unaffected and remained an essential part of its wealth management business and private banking offering.

The cuts in January were pushed through in the final days of former chief executive Peter Sand’s leadership. Bill Winters, who took his place in June, has shown that he will continue to cut costs in the hopes of returning the bank to profit growth.

Pre-tax profit between January and June showed a precipitous drop of 44 per cent from the same period last year to US$1.8 billion, weighed down by a near doubling of impairment losses, outpacing even the most pessimistic analyst projections.

Operating income also disappointed, falling 8 per cent year on year to US$8.5 billion.

In August, under Winters’ direction, the bank announced that its half-year dividend would be halved. However, the disappointing dividend also helped boost Standard Chartered’s common equity tier-one ratio, a measure of a bank’s capital strength and a growing worry, to 11.5 per cent, up from 10.7 per cent at the end of last year. That put it well within the range of 11 per cent to 12 per cent it had aimed to hit by the end of 2015.

The bank also showed that it had reduced risk-weighted assets by 5 per cent to US$326 billion, which helped lift the ratio.

The bank’s shares in Hong Kong closed up slightly at HK$87.90 on Monday, although its price was down by about 0.3 per cent in early trading in London.

The British bank’s reduction of operations in January resulted in the shedding of about 100 jobs in Hong Kong. Globally the bank is seeking to cut 4,000 jobs. Bloomberg reported that at least 10 jobs would be cut as a result of the latest announcement.

Standard Chartered is set to announce results for the first nine months of the year on November 3.