StanChart seeks success in non-succession

IFR 2043 26 July to 1 August 2014
6 min read
EMEA

STANDARD CHARTERED’S JULY 23 statement countering rumours of a succession battle for the chief executive and chairman slots, as Peter Sands and John Peace come under increasing pressure to right the listing ship, was bizarre in so many ways.

In caving in to media speculation, I’m not sure the bank did itself any favours. In fact, on the basis of that old chestnut of reverse psychology, denying the media speculation probably did a lot more to confirm it in the eyes of many people.

The statement glibly confirmed that the board was united in its support of Sands, Peace and the management team. It went on to say that while “robust and considered succession plans are in place for all of the senior leaders … no succession planning is taking place as a result of recent investor pressure”.

But in confirming that there has been investor pressure, you’ve got to wonder therefore, why not? With the shares down 30% since their peak, a sense of strategic listlessness, a poor first-half trading performance, revolving door syndrome at senior management levels, and uncertainties about the sustainable quarter-on-quarter growth potential of emerging markets for a bank that’s irreversibly backed itself down the EM alley, maybe it’s about time for some sort of Plan B.

Maybe it’s about time for some sort of Plan B

IT DID OCCUR to me at the time of the bank’s fairly major reorganisation at the beginning of this year that Sands might be being succeeded out. The fact that Mike Rees had been elevated from running the wholesale bank to become deputy CEO with responsibility for running the full global product suite as well as the delivery platforms prompted me in January to say that it left Sands with a lot more time to play golf.

On the basis of the speculation out there, his last day might be coming sooner than he thinks. Sands has very clearly extricated himself or has been extricated from the day-to-day business. The control functions and the two group executive directors who run the regions (Jaspal Bindra in Asia and V Shankar in EMEA and the Americas) that currently report to Sands can easily be shifted to Rees. To all intents and purposes, Sands is playing second fiddle to Peace as a chairman by proxy while Rees looks to be CEO in-waiting.

So far so simple. Here’s the thing, though: strong signals out there suggest that Rees won’t take over from Sands – partly because of reported reluctance among some shareholders, partly because his push into wholesale markets that was charging growth at group level was done in a way that is now coming back to haunt the bank. In its pre-close trading update on June 26, the bank noted that loan impairment was expected to be up by a pretty gruesome high-teens percent while financial markets and client income will be both down by around 20%.

The bank spoke of weaknesses in rates and FX but it won’t have the benefit of having these businesses bailed out by flat corporate finance income, by retail products (mid-single-digit decline) or by principal finance (down over 10%). Net-net, group operating profit is expected to be down 20% on the same period of 2013.

In the statement, Sands noted that it had been “a disappointing first half, with difficult trading conditions, particularly in financial markets”. Of course, Lenny Feder, who ran financial markets, left the bank on July 19 purportedly on a 12-month sabbatical for personal reasons. Let’s put it this way: if there were odds on whether he’s going to return, I’d suggest they’d be very long on him doing so.

Actually, it occurs to me that Andrew Suckling, global head of M&A, also went off on a 12-month sabbatical in April. It must be catching. Tom Willett took over that mantle on June 1.

THERE’S CLEARLY A lot of behind-the-scenes manoeuvring going on. In terms of where things end up, I’m tipping Mark Dowie, head of corporate finance, to come out quite well from the turmoil. He’s taken over Feder’s responsibility for financial markets while the bank supposedly seeks a permanent replacement.

I wouldn’t be surprised if Dowie ends up running both, or that whoever does come in to run financial markets reports to Dowie, who increasingly has that look of a future head of wholesale, perhaps with James Courtenay, global head of advisory and infrastructure finance, playing wing man. I could be completely wrong in all of this but hey, you can’t fault a man for speculating.

On the regional front, there’s also a lot going on. In June, May Tan was named CEO for Hong Kong, reporting to Benjamin Hung, CEO for Greater China, who was himself only appointed in April; the same month as Lim Cheng Teck took over as CEO for the ASEAN region and just two months after the charming Mohsin Nathani took over as CEO in the UAE. It seems like a lot of change. In May, of course, Andy Halford came in as group CFO to replace Richard Meddings, who had jumped ship in January along with consumer CEO Steve Bertamini at the time of the reorg.

On the plus side, it suggests the bank is working hard to get the business moving again. But is it too little too late?