StanChart faces $4.4 b commodities hit, may need to raise cash: Analysts

Wednesday, 14 January 2015 01:04 - - {{hitsCtrl.values.hits}}

LONDON (Reuters): Asia-focused bank Standard Chartered could need $4.4 billion of extra provisions to cover losses from commodities loans, potentially forcing it to raise billions of dollars from investors, analysts said on Monday. Credit Suisse analysts said the losses could force Standard Chartered to raise $6.9 billion to improve its core capital ratio to 11% by the end of the year.

“We think the needed provisioning could be large enough to require further capital measures, such as further equity raisin, and/or dividend reductions,” analyst Carla Antunes-Silva said in a note. Standard Chartered’s shares were down 2.3% at 923 pence by 1330 GMT, the weakest major European bank. A jump in Standard Chartered’s bad debts in the third quarter has prompted concern that it could face heavy losses from commodities loans after the fall in the price of oil and commodities. Credit Suisse’s estimate was based on an “adverse” scenario that would see the bank need $4.4 billion to maintain its capital ratio, based on a potential $2.6 billion of pretax provisioning for commodities loans that sour and a higher risk-weighting on the loans. It said the bank could announce a rights issue or cut the dividend at its 2014 results, due on 4 March. Standard Chartered declined to comment. “We believe the last two years of de-rating have been driven largely by weaker revenue and that the asset quality deterioration leg is now setting in,” said Credit Suisse, maintaining its “underperform” rating on the stock. Analysts at JPMorgan and Jefferies also cut their target prices on the stock on Monday, saying that credit quality could deteriorate. Standard Chartered CEO Peter Sands is under pressure after a troubled two years in which profits have fallen, halting a decade of record earnings. Some investors have said that Sands should go or the bank should set out succession plans. Sands last week announced plans to close the bulk of the bank’s equities business and axe 4,000 jobs in retail banking as part of a turnaround plan to cut costs and sharpen its focus. The London-based bank issued three profit warnings last year and saw its shares tumble 29%. Credit Suisse said that its analysis was based on default probabilities across Asian energy, metals and mining companies and an assessment of Standard Chartered’s commodities portfolio.

StanChart to close Swiss private bank after sale founders

ZURICH (Reuters): Asia-focused bank Standard Chartered confirmed it is closing its Swiss private bank after failing to attract a buyer for the small Geneva-based wealth manager. The bank said last February that it was looking to sell its Swiss private bank as part of a plan to shed non-core businesses as it sharpens its focus on Asia, Africa and the Middle East. The closure means efforts to find a suitable buyer have been unsuccessful and a spokeswoman for Standard Chartered said it began the process of winding down the business a few months ago. “We have moved the majority of accounts to our other booking centres, e.g. Jersey, London and Dubai,” the spokeswoman said in an emailed statement. Standard Chartered did not disclose the amount of assets under management at the Swiss wealth manager. A 2013 report by the Association of Foreign Banks in Switzerland said the bank had 2.1 billion Swiss francs ($2.07 billion) in client funds. News of the closure was originally reported on Monday by Swiss business newspaper Finanz und Wirtschaft. It is part of broader changes at Standard Chartered which last week announced plans to close the bulk of its equities business and axe 4,000 jobs in retail banking as part of a turnaround plan. Standard Chartered did not disclose the exact number of employees affected by the closure, though the spokeswoman said this number was less than 50. Its Swiss unit had 70 members of staff, according to its website. The majority of employees have either found new roles within the bank or have left, the spokeswoman said. The Swiss unit will continue to service institutional and corporate clients. Royal Bank of Canada is also looking to sell its Swiss banking operations and has hired JP Morgan to help with the sale, Bloomberg reported on Friday, citing a person familiar with the process. A spokesman for RBC said the bank had no comment beyond what it has said previously on the subject, which is that the bank has begun a strategic review of RBC Suisse. ($1 = 1.0145 Swiss francs)