Standard Chartered profit warning

A Standard Chartered profit warning sent shares of the British bank down by 4.5% in the London Stock Exchange on Thursday. Standard Chartered PLC said its operating profit will be 20% lower than last year’s $4.1 billion. Income from its financial markets units has declined significantly, the bank explained.

This is the first decline in annual profits for the bank in ten years, but the second warning on its financial performance in half a year. Analysts had expected 2014 to be a year of gradual recovery. Since August 2013, its share value has fallen by 25%.

In late 2012, it received a fine of $327 million for breaching United States’ sanctions against Iran; this was followed by a worse-than-expected financial performance, which prompted the bank to publish a profit warning in December 2013.

Group Chief Executive, Peter Sands, described the first half of this year as “disappointing”. He said trading conditions were difficult, especially in financial markets.

Bad loans in the first half increased by almost 20% (no exact figure given) compared to the $730 million reported in for the same period last year. First half results will be published on August 6.

Making progress, says Standard Chartered

Mr. Sands said:

“We are making good progress against our refreshed strategy and are taking the right actions in response to a challenging environment – managing costs very tightly, disposing of non-core businesses and optimizing the deployment of capital.”

“As we navigate this difficult period, we remain focused on the drivers of value creation for our shareholders, continuing to build our franchise to make the most of the enormous opportunities in our markets.”

The 161-year-old bank, which focuses on emerging markets, said low interest rates globally meant clients had carried out less business, which meant trading volumes in financial markets were down.

Standard Chartered, which is very active in commodities, equities and foreign exchange, informed that its foreign exchange and interest rate trading took a particularly hard hit.

Better second half predicted

The bank predicts a slightly better second half than last year, and added that the full-year decline on the $6.96 billion operating profit it had reported will be about (minus) -10%.

The results, which have surprised analysts, come as the bank tries to adapt to more stringent regulatory conditions and a less favorable economic environment. This year it has laid off several top executives whose businesses were losing money and reorganized its operational structure.

Looking forward, Standard Chartered wrote that:

  • Transaction Banking has momentum,
  • The recently signed Prudential PLC Bancassurance agreement will help Wealth Management,
  • Corporate Finance has a good pipeline.
  • Financial Markets will continue to be “somewhat uncertain”.

A takeover target?

Since reporting worsening financial results, there has been speculation that the bank would become a target for takeover bids.

Standard Chartered’s global head of financial markets, Lenny Feder, will take a 12-month sabbatical, the bank announced today. It is actively seeking somebody to take his place on a permanent basis. Mr. Sands said Mr. Feder’s move was in no way associated with his unit being the bank’s biggest loss-maker.

Mr. Sands assured investors that there is no chance of his leaving the company or rivals seeking to take over the bank.

Peter Sands - Standard Chartered profit warning

The first half of the year was “disappointing”, said Peter Sands.

Standard Chartered says it is responding to the short-term challenges and remains confident in the strong underlying potential of its markets, and “of our competitive positioning, banking the people and companies driving investment, trade and the creation of wealth across Asia, Africa and the Middle East.”

Anger at executive pay

In May 2014, Standard Chartered faced a shareholder rebellion over executive pay in its annual meeting. Forty-one percent of shareholders opposed its 3-year pay policy, bringing it very close to scraping its pay plans.

Shareholder rebellions regarding bankers’ executive bonuses have been spreading throughout the UK. There is growing anger among stockholders that banks continue paying underperforming executives large bonuses. In the same month, a significant minority of HSBC shareholders voted against its pay plan.

Despite reporting a 30% fall in profits in February and carrying out severe staff cuts to save money, at Barclay’s shareholder meeting in April the bank proposed increasing its executive bonus pool by 10% to £2.38 billion ($3.88 billion). Even some major institutional shareholders, such as Standard Life, voted against the proposal.