But what can the bank’s new CEO do, other than tackle the issues as he sees them one by one? And that’s what he’s doing.
Like other banks, Standard Chartered’s share price doesn’t – and arguably shouldn’t – reflect what’s going on or what lies in store, as what’s required to fix the bank’s woes is: a) far from clear; b) far from an end-point.
Investec analyst Ian Gordon’s “The sack race?” note this morning downgrading the stock from buy to hold sent investors into a bit of a tizz. Given that his forecasts for both revenue – he doesn’t see an uptick until 2017 – and earnings are well below consensus I suspect today’s reactive flurry in the shares could on balance have been a bit overdone.
Gordon discounts a rights issue, incidentally, preferring to believe that existing cost-cutting measures and ongoing deleveraging will deliver sufficient RWA cuts and allow the bank to up its CET1 ratio from 11.5% at H1 2015 to 12.7% by the end of 2017. Notably, he’s constructive on the bank’s long-term repositioning and recovery. Whether that provides any solace to Winters today, though, is debatable.
Being at the helm of an EM bank just when EM is turning potentially treacherous; when your headcount is bloated; your strategy a little woolly; and your structure not pointing in the direction you want to go is a bit of a downer, to say the least. No matter that the long-term prospects for the businesses you deem to be core may be sound. It’s today that’s the problem.
Winters’ July announcement targeting business simplification, greater accountability and organisational de-cluttering etc ticked a lot of boxes. The recent re-org of the debt financing group was premised on a sound basis. Last week’s memo unveiling a one-in-four cull of senior managers, though, was a brutal step.
But beyond the understandable angst of those affected – and of course the revenue impacts emanating from the redundancies of so many senior people including a lot of good people – management de-layering is fundamentally a good idea. A good idea, that is, if you believe that among your basic problems are fragmented and/or sclerotic decision-making processes; management overlap; less than laser-like focus on where the opportunities lie; and an inability to fit the business model to those opportunities.
Financing rewiring
Removing the syndicated lending platform from the financial markets business broke the former combined capital markets business. But setting up the lending piece in a new financing group close to leveraged, trade, project, export and commodity finance and M&A in the corporate finance segment is how most other integrated CIBs have done it, albeit with some management roles bridging the divide.
This will arguably bring greater rewards from a client engagement perspective than housing lending with DCM. Unlike lending, the bond new-issue business needs to be joined at the hip to sales and trading.
Again, from an org point of view, having half a dozen regional capital markets heads with a layer of multiple regional DCM heads underneath them has looked for some time like a case of ‘too many cooks’. Only time will tell, but the new set-up looks fit for purpose. If you slim your regional management from eight regions to four, as Winters has done, it’s only logical that product management and coverage should consolidate under that.
Similarly, reducing your client footprint where relationships aren’t paying their way and focusing on core areas and products is hardly rocket science.
To be fair, StanChart doesn’t fare at all badly in its primary financing businesses. It’s a top-three player in both Asia and Middle East DCM, according to Thomson Reuters data. On the lending side, it ranks a creditable 25th in the global (ex-US) league table – I mention that because it speaks to the quantum of its activity – but since pretty much all of its commitments are in its focus geographies of Asia, Middle East and Africa, its 7th position for Africa/Middle East lending and 6th in Asia-Pacific (ex-Japan and ex-Australia) tell the story better.
The bank also ranks 6th in Europe by dint of its Turkish FI lending, which accounts for all of its 2015 European deal flow. So far this year, StanChart been involved in syndicated deals for 11 Turkish banks that have raised in excess of US$11bn in aggregate. (Risky?)
The news around StanChart looks likely to continue seeping out until Winters unveils all at his next investor day. We should know by then or then at the latest, by the way, if Mark Dowie will actually get to run the Corporate and Institutional Banking division, the umbrella division for corporate finance, financial markets, international corporates, transaction banking, FIG, research, and Islamic banking. As far as I can tell, he’s still interim.
Then again, taking on a position that’ll amount to little more than shrinking the footprint is hardly what you’d wish for yourself, is it?
