Macaskill on markets: Standard Chartered's Bill waits for the Fed's Janet

By:
Jon Macaskill
Published on:

Bill Winters has some big decisions to mull while he prepares to start his new job as Standard Chartered chief executive.

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Should he shift the bank’s headquarters from London to Hong Kong or Singapore? Is a capital increase wise while he is still in a honeymoon period with investors? Should Standard Chartered extend its sponsorship deal with Liverpool Football Club next year, given the team’s perennial struggle to find late-season form?

But the single biggest determinant of success for Winters may be whether or not Janet Yellen and the rest of the Federal Reserve board decide to start raising US interest rates this year and manage a shift from near zero levels without causing global market disruption.

Standard Chartered is more positively geared to rising US interest rates than most big banks because many currencies in its core Asian markets are tied to the dollar. 

Citi estimates that a return to the 10-year average for net interest margins in dollars in the wake of rate hikes could boost Standard Chartered profits by a third. That is a bigger proportionate increase than would be seen for top US banks, and rising interest margins would provide a steadily growing profit multiplier to flatter the effect of other changes implemented by Winters.

Napoleon observed that he looked for generals who were lucky as well as good, and Winters could benefit from both markets headwinds if rate increases start soon after he takes charge at Standard Chartered in June, and from an undemanding bar for success.

This move was hailed as altruistic in some media articles, while cynical peers thought it chiefly reflected Winters’ caution

A series of profit warnings and a horribly botched reaction to regulatory problems with US supervisors have created an air of crisis at Standard Chartered over the last three years. 

The bank remains reasonably well capitalized, with a bias towards fast-growing emerging markets and limited exposure to the trading businesses being hit hardest by new regulations, however. 

It was able to maintain revenue at just above $18 billion last year and would have generated a little over $5 billion of profit if it hadn’t been for those pesky regulatory fines and some credit valuation charges, which together lopped $1 billion off the pre-tax total.

Winters had a strong track record as co-CEO of JPMorgan’s investment bank before he was ousted in 2009 after falling out with group CEO Jamie Dimon. The investment bank at JPMorgan delivered $28 billion of revenue and almost $7 billion of profit in the year Winters was shown the door, so he should have little problem managing the scale of the business at Standard Chartered. 

Winters has never supervised a retail banking business or been based in Asia, but that is not viewed as a problem, going by the ecstatic reaction among analysts and many investors to his appointment as the replacement for departing Standard Chartered CEO Peter Sands. 

This partly reflects the 2015 vogue for installing a fresh pair of eyes at the top of big banking groups. Soon after the appointment of Winters at Standard Chartered, Credit Suisse decided to replace veteran CEO Brady Dougan with insurance company executive Tidjane Thiam. 

This trend may be starting to worry other long-standing insiders who have clawed their way to the top at firms such as Deutsche Bank and HSBC, as the bump to both the Standard Chartered and Credit Suisse share prices resulting from bringing in outsiders has been substantial enough to make even the most passive investors take note.

The enthusiasm among analysts and the media for the appointment of Winters also reflects his remarkable facility with public relations or, more charitably, his impressive communications skills.

Reputational fallout

Rival bankers of a similar vintage to Winters, who is now 53, have long marvelled at his ability to generate positive publicity for himself while working in markets that are often controversial. His ability to project the air of a man who holds himself to rather higher standards than many of his peers is a particular source of envy, and annoyance. 

JPMorgan successfully established itself as chief cheerleading bank for credit derivatives when the market was promoted as a transformational innovation and revenues were booming, only to escape most of the reputational fallout when the new instruments played a central role in the credit crisis of 2008, for example.

That was partly a testament to capable risk management by Winters, who steered his traders away from some of the worst-affected sectors, but it also demonstrated adroit presentational footwork. 

After being pushed out of JPMorgan in 2009, Winters checked himself into a version of reputational rehab as a precautionary measure by signing on for an unpaid stint on the Vickers Commission that the UK government established to examine how banks could be made structurally safer.

This move was hailed as altruistic in some media articles, while more cynical peers thought it chiefly reflected Winters’ caution about accepting another senior banking job while it was still unclear whether some leading firms would collapse or be broken up.

His next step – to set up an asset management firm called Renshaw Bay – also drew coverage that some thought was completely out of proportion. After launching the firm in 2011, Winters condemned the “carpetbaggers” among credit investors (many of them his fellow Americans) who had made a quick profit in the years after 2008 by buying cheap assets. Renshaw Bay, by contrast, would be a long-term investor contributing to the important social adjustment of providing additional sources of financing.

Further reading
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Off message: Standard
Chartered’s Sands – Death
by a thousand cuts

It was not at all clear how Renshaw Bay differed from any other investment vehicle set up to exploit opportunities in different parts of the capital structure, however. And while the firm may or may not have a long-term future, it will not be with Winters at the helm. As many had predicted, he finally settled on one of the banking job offers that came his way with a decision that a role as Standard Chartered CEO offered a good balance of risk and reward.

One of the next decisions he will have to make in his first months in the job could involve another adjustment to a previous commitment, in the form of his devotion to living in London. Connecticut-born and raised, Winters has lived in London for the last two decades and resisted attempts by JPMorgan to relocate him to headquarters in New York as he received successive promotions at the bank.

Now though, he faces mounting pressure from shareholders to move the domicile of Standard Chartered from London to either Hong Kong or Singapore. When his appointment was announced in February it seemed likely that he would be able to present a decision to stay in London as prudent, given the regulatory complications of a shift. 

But the tax benefits of a move look increasingly compelling, as the UK is set to increase its levy on locally based banks. And Standard Chartered shares received a boost of 7% in late March when analysts at Winters’s old firm JPMorgan predicted that the bank would move its headquarters closer to its core Asian markets. 

A decision to leave London might be a wrench, but if anyone can present it as the best possible outcome it is surely Bill Winters.