M&A: Sands insists ‘going nowhere’; rebuts capital call

Standard Chartered’s chief executive Peter Sands has said he is "going nowhere" and that the bank has no plans to raise fresh capital following a board and business restructuring to "reinvigorate growth".

The emerging markets-focused bank announced on January 9 that it planned to combine its wholesale and consumer banking businesses into one group under Mike Rees, who has been promoted to deputy group CEO, reporting to Sands. Rees has been CEO of wholesale banking since 2002.

Steve Bertamini, CEO of consumer banking, and Richard Meddings, group finance director and one of Sands’ key lieutenants, will also step down later this year under the announced board changes.

The restructuring comes after Standard Chartered outlined to investors in November that it was planning a shake-up as part of its efforts to "refresh" the bank’s strategy and reinvigorate growth after a year when it was hit hard by jitters in emerging markets and a $1 billion write-down related to its struggling South Korean operations.

This, in turn, led the bank late last year to drop its target to generate annual double-digit percentage revenue growth, a move followed by a warning in December that it might suffer its first fall in profits for a decade.

The performance of the bank last year has raised questions about its direction: if it’s now in play as an acquisition or merger candidate, and if it has sufficient capital.

During a conference call on January 9, Sands directly rebutted the idea that the bank needed to strengthen its core tier 1 capital, which is estimated, on a fully loaded CRD IV basis, at 10.2% for 2013. "We are strongly capitalized and have no plans to raise capital," said Sands. "We have had no indication from the regulators at any stage that they are dissatisfied with our capital position. In fact, the opposite."

He added: "In the context of the ongoing uncertainty about where the regulatory bar is going to go, which we all know is kind of murky, we are managing for capital accretive growth. And to dispel the media noise about this pre-Christmas, there’s been no dispute at board level either."

However, Credit Suisse’s bank equity analysts published research in December that they expected Standard Chartered’s full-year 2013 Basle III core tier 1 capital ratio to be 10.1%, and that there would be very limited improvement over time, reaching an estimated 10.2% in 2016.

"This leaves the company significantly below the UK peer group, which we expect to be at 11.6% on average by [year end] YE2015E [estimated]," said the analysts, adding: "Further, with operational RWA increase and the final dividend payment in H1 2014, we see a risk the group prints a Basle III fully loaded ratio below 10% at H1 2014E."

Outgoing finance director Richard Meddings was also defiant on the issue of the bank’s capital position. On the question of the bank’s Basle III target ratio, he said: "I’m not going to give you a target level. Our view is that we will remain strongly capitalized.

"The PRA [Prudential Regulatory Authority] have repeatedly told us in the past few months that they are more than satisfied with our capital level."

Standard Chartered’s core capital levels will be closely watched as it executes on its "refreshed strategy", which Sands said would deliver cost savings and "sharpen our focus on distinct customer segments, enabling us to deploy capital, liquidity and investment spend more effectively".

Under the restructuring, wholesale banking and consumer banking will be combined into one business, which will be organized into three customer groups – corporate and institutional clients, commercial and private banking clients, and retail customers. The bank said these three groups would be serviced by five product areas: financial markets, corporate finance, transaction banking, wealth products and retail products.

Rees, who has been CEO of wholesale banking since 2002 and has worked at the bank for 24 years, will run the combined business and take on the title and role of deputy group CEO. During the call, Sands said that this new role had nothing to do with succession planning for him as group CEO or even the group chairman.

"Let’s be very clear about this, this is not about me going anywhere. And just to respond to some of the interesting speculation pre-Christmas, I don’t want to be chairman and have never expressed a desire to be."

He added: "My role doesn’t really change as a result of this. This reorganization is not about my succession because I am not going anywhere. Neither, for that matter, is the chairman. We’re delighted to have Naguib [Kheraj] on the board but that isn’t what that is about."

Kheraj, former chief financial officer of Barclays and CEO of JPMorgan Cazenove, joined Standard Chartered’s board in January as an independent nonexecutive director, an appointment seen by many as a move to help strengthen the bank’s governance and risk-control oversight.

Standard Chartered was forced in 2012 to pay US authorities over $600 million in fines to settle charges that it had violated US sanctions against countries such as Iran and Libya, raising questions over its risk management.

Embarrassingly, Sir John Peace, the chairman of Standard Chartered, was forced last March to issue a humbling apology for dismissing the bank’s breaches of US sanctions as a "clerical error".

It was around that time that speculation emerged that the bank might be a takeover target. Speculation has since re-emerged and a research note from Citi equity analysts on January 10 said Standard Chartered might be a takeover target for ANZ, which has a market cap 50% higher.

"The disparity in market caps could mean any "merger of equals" would be more of a classic takeover," the analysts said, before adding that while a deal might be possible, it was "unlikely".