StanChart posts first loss in 26 years as revamp costs bite

Reuters: Standard Chartered reported its first annual loss since 1989 as hefty restructuring costs and weak commodity prices took their toll on the emerging markets-focused lender.

The bank slumped to a headline pretax loss of $1.5 billion, after accounting for costs from redundancies and impairments on bad loans. Underlying profit plunged 84% to $800 million, missing analysts’ average estimate of $899 million, according to Thomson Reuters data.

The loss shows the scale of the task facing new Chief Executive Bill Winters as he attempts to restore revenue growth after six successive quarters of decline.

The bank’s shares fell as much as 12% before recovering slightly to be down 5.4% at 0942 GMT.

Former JPMorgan investment banker Winters last November announced plans to axe 15,000 jobs and raised $5.1 billion in capital as part of a plan to restore profitability and shore up the balance sheet.

“The challenging external environment is not an excuse for our performance. We are not unwitting victims,” Winters said.

“The external challenges increase our urgent need to take all necessary steps to address the structural and operational issues we have identified as critical to improving returns”.

The bank said none of its executive directors would be paid a bonus for 2015, while bonuses across its workforce were down an average 22% year-on-year.

The lender plans to introduce a new long-term bonus plan for its 200 or so most senior managers that will pay out in 2018 if they meet targets to improve shareholder returns and other strategic objects.

Deteriorating environment

Standard Chartered’s problems began to emerge in 2012, when after a decade of rising profits the lender was hit by U.S. regulatory fines and the start of a prolonged downturn in emerging markets and commodity prices on which much of its fortunes depend.

Unable to reverse the trend, previous CEO Peter Sands was ousted in February last year.

The deteriorating environment in emerging markets caused the bank’s gross level of non-performing loans to jump from $7.5 billion at the end of 2014 to $12.8 billion by end-2015.

However the bank said it is reducing its risk exposure and over the past year had cut its exposure to commodities by 28%, with its commodity-linked lending portfolio now less than $40 billion.

“On the assumption that commodity prices remain at around current levels, we would not expect this portfolio to reduce materially from here,” Chief Financial Officer Andy Halford said.

Analysts at Bernstein Research said the bank would be able to weather the storm and still had a relatively good underlying business model. “Trade is not dead and Standard Chartered still has a top class franchise in emerging markets,” they wrote.

The bank confirmed it would not pay a dividend for 2015, but Chairman John Peace said the board intends a payout for the 2016 financial year.

The bank’s shares had fallen 22% this year amid a 20% drop in European bank stocks as investors worry about slowing growth and lenders’ loans to the embattled energy sector.