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Monday, 11 December 2017

StanChart’s sharper structure?

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IFR editor-at-large Keith Mullin mulls the latest boardroom reshuffle.

Keith Mullin Commentary image

Keith Mullin

IFR Editor at Large

I’M RESISTING THE temptation to provide my view of what lies in store for the market until next week, when I’ll be contributing to IFR’s series of 2014 outlooks. In the meantime, however, I was taken with the latest reorganisation by Standard Chartered announced on January 9.

The bank’s heady long-run growth streak has clearly come to an end, so management and the board are hoping that the re-org, which is intended to “operationalise” the “sharpening” of the strategic and financial performance aspirations outlined at the investor day in November 2013, will do the trick.

I’ve got my doubts. Not to be mean so early in the year, but the investor day looked like a bit of a snore-fest, droning on about perennial bank strategy topics such as client-centricity, delivering across the group, serving clients better, platforms, saving costs and (always my favourite) strengthening culture.

Whatever the case, the man tasked with pushing business growth at this challenging time is Mike Rees. He made out like a king in the re-org (which by the way takes effect on April 1, never a good date to start anything new). The former CEO of wholesale banking got a 33% bump in salary to £975K (U$1.5m) to become deputy CEO and run the newly combined wholesale and consumer division, as well as the global product suite and delivery platforms.

That leaves group CEO Peter Sands with a lot more time to play golf, since, other than Rees, only the two so-called “geo network” CEOs and the support functions now report to him. As the bank hits a sticky patch and growth starts to cool, though, could the organisational evolution be an inspired move by Sands to have someone to blame as he distances himself from divisional responsibilities and shareholders start to second-guess what happens over the next two to three years?

Surely not, but it’s clear that the group has hit some road bumps at a time when emerging markets aren’t looking so hot, and needs to work around them to maintain its claim to fame as a fast-growing EM-focused bank. The re-org also pushes StanChart much more firmly on to the corporate and investment banking side of the fence, just when IB is facing significant challenges.

The shares have certainly performed very poorly. Near the end of the morning session in London trading on January 10, they were quoted at 1,287p, almost 28% off their high of the last 12 months reached in March 2013. The lack of growth suggests the shares will continue to trade at a discount. James Chappell, a bank analyst at Berenberg, reckons a capital raising is unavoidable as the bank will be unable to earn its way to required regulatory capital ratios.

As a result of the re-org, group FD Richard Meddings (whose infamous rant against Americans in the summer of 2012 appeared in New York Superintendent of Financial Services’ Benjamin Lawsky’s wonky case against the bank for its Iran dealings) is walking, as is former consumer group CEO Steve Bertamini.

I WAS GRATEFUL to the bank for laying out its new structure in the re-org announcement. I’ve always found StanChart’s product segmentation slightly bewildering. Here’s how it stands now. The group is split into three customer segments: an outsize corporate and institutional client group (run by Sean Wallace and responsible for 60% of operating income using 2012 full-year data); retail (30%) and commercial and private banking (10%).

The customer groups are in turn fed by five product lines also run by Rees – corporate finance (headed by Mark Dowie); financial markets (Lenny Feder); transaction banking (Alex Manson); wealth (Judy Hse) and retail (TS Anil). The delivery engine is run by three people who all seem to have titles that are different ways of saying the same thing: a business COO, a group business head for the regions and a group head for strategic business integration. The management consultants have clearly run riot here.

It’s clear that fourth-quarter trading was sub-par, so the full-year results are likely to be more closely watched than usual. Time to buy some puts?

FAR BE IT from me to suggest the product set-up is a little convoluted, but I reckon the bank could do worse than call in the consultants to streamline its product suite, too. Straight away, I’d rename Mark Dowie’s corporate finance world structured finance solutions, and he could dispense with having to use “structured” and “solutions” so many times to describe his business lines. Here’s what I mean: his group encompasses (with my underlining):

  • Structured finance (22% of the business as of 1H13) covering lease and asset-based financing; structured financing solutions; structured lease finance; asset finance and leasing solutions, principal-to-principal structured financing transactions). (Don’t ask me what the differences are.)
  • Structured Trade Finance and Financing Solutions (also 22%)
  • Advisory and infrastructure finance (15%): Advisory and financing solutions (geo and industry sector expertise combined with M&A advisory and financing); project and export finance.
  • Strategic Finance (41%): composite capital solutions including ECM, corporate equity derivatives complex structured acquisition financing and leveraged finance

Dowie’s businesses don’t have a monopoly on structuring. Lenny Feder’s financial markets division has a go, too. As well as the equity and FICC trading businesses, Feder has capital markets, which includes what the bank calls a capital markets solutions group that includes equity-linked solutions as distinct from Dowie’s ECM and corporate equity derivatives businesses; structured financing, ie, securitisation; as well as insurance and pension ALM solutions. He also has a structured products group (principal-protected or principal at risk investment strategies). My point, is it could all do with some tidying up.

It’s clear that fourth-quarter trading for the group was sub-par, so the full-year results, out on March 5, are likely to be more closely watched than usual. Time to buy some puts?

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