The odds are stacking up against Peter Sands keeping his job.
Standard Chartered Plc (STAN)’s chief executive officer is the bookmakers’ favorite to be the next U.K. leader to depart.Ladbrokes Plc (LAD) and Paddy Power Plc (PWL) are offering odds of 4-to-6 and 4-to-7 respectively for Sands, 53, to leave this year, the shortest for any British executive. The shares were the worst performing of major U.K. lenders in the past year.
Sands announced the biggest job cuts in his eight-year tenure last week in a bid to reassure investors management can stem two years of falling earnings and shares. He previously helped oversee a decade of earnings growth through the financial crisis. Now, faced with an Asian slowdown, U.S. conduct fines, loan impairments and plummeting commodity prices, some shareholders are losing patience.
“The most sensible thing to do may be to get all of the rubbish out of the way with Sands in charge, make losses and shut a few businesses, then sack him after,” said David Fergusson, chief investment officer of Singapore-based Woodside Holdings Investment Management Pte., who owns the stock. “Then you can get some new people in; have a clean start.”
Simon Kutner, a spokesman for Standard Chartered in London, declined to comment, and referred to a July statement that said the board was “united in its support” of both Sands and Chairman John Peace in restoring the bank to profitable growth.
Both bookmakers consider Sands’s departure so probable they’re listing odds-on bets, meaning gamblers have to put down a greater stake than the potential return. Ladbrokes is offering four pounds ($6.07) for every seven successfully wagered, compared with two pounds for a pound bet six months ago.
Wiped Out
Since 2007, Standard Chartered almost doubled lending to customers to $305 billion, and about 80 percent of its loans now are to Asian borrowers. That expansion has been choked as economic growth in Asian countries such as China and South Korea slowed and the price of oil dropped to the lowest in more than five years. Sands has responded by retreating from less profitable markets and cutting costs.
The bank was forced to reduce its earnings forecasts three times in 2014. Impairments for souring loans almost doubled to $539 million in the three months ended Sept. 30, from a year earlier, hurt by the bank’s $61 billion of loans linked to commodities.
Standard Chartered’s market value of 21.9 billion pounds is about 30 percent less than its book value, indicating it’s worth less than investors should expect to receive if the company failed and liquidated its assets.
Shares Down
The shares rose 0.8 percent to 893 pence at 8:36 a.m. in London. They have declined about 7.1 percent this year, with the bank saying last week it was shutting equities trading and eliminating 4,000 consumer-bank jobs to help cut $400 million.
The cost cutting plans so far don’t go far enough, according to analysts.
“As Standard Chartered’s core businesses start to underperform, they have to revisit every area where they just aren’t making money, equities being a good example,” said Christopher Wheeler, an analyst at Atlantic Equities LLP in London. “Peter Sands won’t want to bow out on a sour note. He wants to feel he’s restored the business, having had such a great run during the crisis.”
‘Fundamental Change’
Berenberg Bank analyst James Chappell, who has a hold rating on the stock, said in a note this week that wholesale management change and a “fundamental change” in strategy including a deeper cost-cutting plan could motivate him to upgrade his rating on Standard Chartered.
“We would not be buying these stocks yet without a clear indication of the necessary change taking place,” Chappell said.
UBS Group AG cut Standard Chartered to neutral from buy yesterday, with London-based analyst John-Paul Crutchley citing the need for the lender to shift its strategy as it makes low returns from its businesses and he estimates the bank will have to cut its dividend by 50 percent this year.
“We question whether the group is doing enough to restructure its business for the realities of a post-crisis world,” wrote Crutchley.
Bidders Circle
As the share price falls, potential bidders have started to circle parts of the bank’s operations. The lender rebuffed at least one potential buyer of its African operations last year, saying it wasn’t interested in selling the business, two people with knowledge of the talks said earlier this week.
An official for Singapore’s state-owned investment firm, Temasek Holdings Pte., declined to comment. Temasek is Standard Chartered’s biggest shareholder, with an 18 percent stake, according to data compiled by Bloomberg. Guy Nicholls, a London-based spokesman for Aberdeen Asset Management Plc, the second largest shareholder, declined to comment on the bank’s leadership.
Standard Chartered’s investors are also bracing for the bank to raise equity to shore up its capital buffer ahead of tougher U.K. central bank stress tests, which are set to include commodity exposures and more risks abroad.
“The Bank of England is going to start stress-testing the emerging market book and commodities this year which will be significant for Standard Chartered” and makes a rights issue “highly likely,” said Chirantan Barua, an analyst at Sanford C. Bernstein, who rates the stock underperform. If Lloyds Banking Group Plc with a 12 percent capital level almost failed last year’s test, “then you can guess for yourself the stress on StanChart’s 10.5 percent level, if those books were exposed to the same intensity,” he said.
Bank DNA
Additionally, with commodity and oil prices in free fall, analysts at Credit Suisse Group AG estimate Standard Chartered may have to raise $4.4 billion of additional capital to cover losses on loans to natural-resource companies. Deputy CEO Mike Rees said in November it will not retrench from trade finance as “commodities are part of the DNA of the bank.”
Sands, a former partner of management consulting firm McKinsey & Co. joined the bank in 2002 as finance director, succeeding Mervyn Davies as CEO in November 2006. Under his tenure, total assets at the bank increased to $690 billion in June from $266 billion in December 2006, according to data compiled by Bloomberg.
Standard Chartered in October forecast a drop in second-half earnings. The bank posted a 16 percent decline in third-quarter pretax profit to $1.53 billion from a year earlier, as provisions for bad loans increased and regulatory and compliance costs rose.
U.S. Fines
Sands may also continue to grapple with conduct issues in the U.S. The bank may have committed trade sanctions violations beyond those covered by a 2012 settlement for conducting prohibited business with Iran, U.S. prosecutors said last month. U.S. government oversight of the bank will continue for a further three years, even after the bank agreed to pay $327 million in 2012 covering conduct from 2001 to 2007.
Bookmakers see the other U.K. bank CEOs as safer in their seats.Stuart Gulliver, who heads HSBC Holdings Plc, is 3-to-1 at Ladbrokes and 4-to-1 at Paddy Power to leave this year, and Barclays Plc CEO Antony Jenkins’s departure has odds of 3-to-1 and 6-to-1 respectively at the betting companies.
Bloomberg
As the share price falls, potential bidders have started to circle parts of the bank’s operations. The lender rebuffed at least one potential buyer of its African operations last year, saying it wasn’t interested in selling the business, two people with knowledge of the talks said earlier this week.
An official for Singapore’s state-owned investment firm, Temasek Holdings Pte., declined to comment. Temasek is Standard Chartered’s biggest shareholder, with an 18 percent stake, according to data compiled by Bloomberg. Guy Nicholls, a London-based spokesman for Aberdeen Asset Management Plc, the second largest shareholder, declined to comment on the bank’s leadership.
Standard Chartered’s investors are also bracing for the bank to raise equity to shore up its capital buffer ahead of tougher U.K. central bank stress tests, which are set to include commodity exposures and more risks abroad.
“The Bank of England is going to start stress-testing the emerging market book and commodities this year which will be significant for Standard Chartered” and makes a rights issue “highly likely,” said Chirantan Barua, an analyst at Sanford C. Bernstein, who rates the stock underperform. If Lloyds Banking Group Plc with a 12 percent capital level almost failed last year’s test, “then you can guess for yourself the stress on StanChart’s 10.5 percent level, if those books were exposed to the same intensity,” he said.
Bank DNA
Additionally, with commodity and oil prices in free fall, analysts at Credit Suisse Group AG estimate Standard Chartered may have to raise $4.4 billion of additional capital to cover losses on loans to natural-resource companies. Deputy CEO Mike Rees said in November it will not retrench from trade finance as “commodities are part of the DNA of the bank.”
Sands, a former partner of management consulting firm McKinsey & Co. joined the bank in 2002 as finance director, succeeding Mervyn Davies as CEO in November 2006. Under his tenure, total assets at the bank increased to $690 billion in June from $266 billion in December 2006, according to data compiled by Bloomberg.
Standard Chartered in October forecast a drop in second-half earnings. The bank posted a 16 percent decline in third-quarter pretax profit to $1.53 billion from a year earlier, as provisions for bad loans increased and regulatory and compliance costs rose.
U.S. Fines
Sands may also continue to grapple with conduct issues in the U.S. The bank may have committed trade sanctions violations beyond those covered by a 2012 settlement for conducting prohibited business with Iran, U.S. prosecutors said last month. U.S. government oversight of the bank will continue for a further three years, even after the bank agreed to pay $327 million in 2012 covering conduct from 2001 to 2007.
Bookmakers see the other U.K. bank CEOs as safer in their seats.Stuart Gulliver, who heads HSBC Holdings Plc, is 3-to-1 at Ladbrokes and 4-to-1 at Paddy Power to leave this year, and Barclays Plc CEO Antony Jenkins’s departure has odds of 3-to-1 and 6-to-1 respectively at the betting companies.
Bloomberg
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