Standard Chartered chief faces future with revamped operation

WHEN Malcolm Williamson first joined Standard Chartered Bank in 1989 as a director, he was appalled by the endless list of things that had gone wrong.

The most obvious one was the bank's ambition to have a presence in almost every country, the rather unrealistic aspiration to be a global institution.

However, his outsider's views were not shared by the insiders.

Boardroom back-biting, political struggles and bickering ensued.

Now, out of the 30 directors and senior management staff, only six are more senior than Mr Williamson with regard to their years of service with the bank.

Appointed as the bank's chief executive in 1993, he revamped the boardroom composition, filled it up with experts from various banking fields who, most important of all, shared the same development plan as he did.

He gave a much-needed, well-defined identity to the bank by focusing on its core businesses and slashing the non-core ones.

By concentrating on commercial banking in the fledging emerging markets, the bank moved to sell all other unrelated activities.

Now the choice has to be made on investment banking.

'The questions is: what is our core investment banking business? What are the luxuries that we can afford to do without?' Mr Williamson said.

Since the bank's franchise is in emerging markets and its bread and butter business is in trade finance, it means treasury and the related areas of debt, project financing and syndicated loans are indispensable services.

'That will help us to link up with big multinationals, corporates and other financial institutions,' Mr Williamson said.

Then comes the more problematic equity side.

'We have a dilemma here. The equity side is more volatile and needs a critical mass to conduct research to back you up. We do not have that clout,' he said.

However, in developing emerging markets such as China, commanding expertise on the equity side gave a competitive edge.

'It is one of those pieces in the tool-kit that you carry with you in those emerging markets,' Mr Williamson said.

The solution was to find a partner with the relevant expertise.

The bank is prepared to keep only a minority stake in its equity business, about 20 per cent.

By pairing up with the right partner, it hopes the volatility shown in its latest profit result can be reduced.

Last year, the bank reported a loss of GBP16 million (about HK$200 million) in its investment banking against a profit of GBP47 million in 1993.

'The question is can you afford that type of almost GBP70 million swing?' Mr Williamson said.

Admitting that the bank was talking to a number of parties, he said the criteria included expertise, a good name and an interest in emerging markets.

'It is not easy because the market now is not good and the Barings incident does not help,' he said.

But he hoped to strike a deal before the interim result is announced.

A speedy resolution would minimise the impact on the staff.

While the bank is sorting out how to handle its equity arm, it is looking to expand retail lending such as mortgages in countries with good, long records of best practice.

Hong Kong, India and some Southeast Asian countries are targets for growth.

Other areas of expansion include corporate or institutional business, trade finance, custody services and more fee income. Other agenda items on his mind are capital raising and cost-cutting.

Despite achieving a tier-one capital of 7.5 per cent and total capital ratio of 14.2 per cent, Mr Williamson has started planning for a period of steady loan growth during which more capital may be needed.

To free up more capital for use, the bank experimented with a $1 billion mortgage securitisation in Hong Kong last year.

'Now we have the framework in place. But we won't do it regularly because it is still a conservative market and there is not much appetite for such papers,' he said.

To reduce cost and generate revenues, he said more staff would be laid off through voluntary retirement schemes in countries like Malaysia and Indonesia. Work procedures had been re-engineered and all computer systems' back-up would be re-located to Hong Kong.

He also declared the end of free banking in Hong Kong with interest-rate deregulation.

'Customers eventually will pay for the services they get in some way. That was what happened in Britain after deregulation,' he said.

The economics of running a bank dictated that banks moved closer together in service charges, he said.

'There may not be cartels but there will be a lot of watching over the shoulders. One can't be massively out of line.'