Investors may have reacted with dismay to Standard Chartered’s US$139m Q3 pre-tax loss and heavily discounted US$5.1bn rights issue, and the shares duly tanked. But was today’s market close of 666 – aka the number of the beast – a grisly snipe at Bill Winters or was it mere coincidence?
I jest; of course … But putting the StanChart strategy update and capital-raise in the context of Deutsche Bank’s €6bn Q3 net loss; Credit Suisse’s US$4.8bn capital raise; Jes Staley being thrust in at the deep end as Barclays’ new boss – existing actions underway, new actions pending; the ditching of dividends; bonuses under pressure; tens of thousands of job cuts; all four banks (I’m calling them the EUR-4) immersed in dramatic cost/cost-income ratio/RWA reduction and business/ROE optimisation at the same time as they face tough economic headwinds amid a regulatory squeeze to boot doesn’t exactly paint a rosy picture, does it?
As if that weren’t enough, we also got S&P placing the eight US G-SIBs (BAML, BNY, Citigroup, Goldman Sachs, JP Morgan Chase, Morgan Stanley, State Street, Wells Fargo) on negative CreditWatch on the back of the Fed’s long-term debt and TLAC proposal last Friday that could consign them to having to fill a US$234bn hole.
Certainly, on a look-across basis, people are much less concerned about the burden on the US banks, which does look infinitely less testing. In Europe, it’s four new CEOs under intense scrutiny with four mountains to climb within a regional segment with a far more intransigent set of issues and – with some exceptions – a segment that is way behind its US counterparts in fixing business and operating models.
Will Winters end up with his “lean, focused and well capitalised international bank poised for growth across our dynamic and growing markets in Asia, Africa and the Middle East”? Will Cryan get his simpler, better capitalised, better run and more efficient bank with a lower risk profile and will his “plans to build a better Deutsche Bank” work? Sounds like the trailer for some cheap B-movie, I know, but the answer is: it’s anyone’s guess.
In fact, no-one will know if any of these strategic overhauls hit the sweet spot until terminal 2018 at the earliest because that’s where the CEOs have set the focal point for success. No holding of breath allowed here. We don’t even know if the current CEOs will stay the course and be there to drive their banks into the next phase of growth. Three years is a long time when the chips are down.
Talking of chips, what’s a fact is that share prices of the EUR-4 have been hammered as we’ve awaited progress. Standard Chartered in particular has seen a dramatic 44% collapse between the lows of today and its highs of 2015 set in late March; the others are all in uncomfortably negative territory.
Incidentally, I do wonder whether in three years Cryan will be wondering whether he should have bitten the bullet and announced a capital-raise now. I have this creeping feeling he’s going to need one eventually to bolster his capital base. As a fan of kitchen-sinking, why didn’t he throw in a rights issue into the mix?
What I can easily foresee is the bank executes on its plans to cut RWA and CRD4 leverage exposures, winds down its non-core unit and recognises the dividend suspension benefits but then figures out that its target CET1 and leverage ratios don’t stack up as the industry has moved on and the bank still ends up with that perennial criticism that it’s capital light.
Hey ho. With Cryan – arguably speaking for all European banks – telling us 2016 and 2017 will be difficult and that it won’t be sweetness and light, if I were an investor I’d probably be voting with my feet. Having banks trade at a discount to book today with a long tail of forward uncertainty doesn’t strike me as a sound investment proposition.
