Class of 2019: Standard Chartered
Returning money to shareholders was an important milestone; building revenues and controlling costs remains the key task.
Another corner turned?
Standard Chartered has not been short of false dawns over the last few years, but in many respects 2019 felt like a watershed for the bank. It has started to return capital, beat forecasts on growth, resolved a long-standing regulatory issue and set about a new plan.
StanChart likes plans. Bill Winters unveiled his first one in November 2015, based on revamping risk culture, slashing costs and purging bad loans. That largely achieved, a new one followed in February 2019. This one pledged to double return on tangible equity and dividends in three years, cut $700 million of costs and boost income.
“Broadly, we are happy with the course we are on,” says Andy Halford, CFO. “We will fine tune it a little bit, but will focus on the same things as previously,” such as focusing on network and transaction activity on the corporate side, and the most-affluent clients on the consumer side, all while keeping a close eye on productivity and the cost base.
In April, the bank announced two key things. The first was a $1 billion share buyback, launched on the back of a 10% year-on-year rise in quarterly profit. This was a bigger deal than it might at first appear. Shareholders have been waiting for some kind of capital return for a long time – it’s been 15 years.
“The fact that we are now returning money is important, and the fact that we haven’t done it for a long period before is noteworthy,” says Halford. “What we said to shareholders right the way through was that as soon as there was sufficient excess, if there was not a need for it in the business, we would return it. We have put our money where our mouth is.”
The other big step was the announcement of a $1.1 billion fine to resolve investigations by US and UK regulators into alleged breaches of sanctions against Iran.
This issue had been hanging over the bank since Peter Sands’ time and it was time to draw a line under it.
“It was important,” says Halford. “It was five years in the making to get to the resolution. OK, it did cost a chunk of cash, but it took a lot of energy to put that chapter behind us.”
By the end of October, StanChart was announcing a third-quarter profit result that boasted 16% year-on-year growth, beating forecasts. What’s happening in the businesses to drive this?
“A couple of years ago we set out that we would grow revenue in the 5% to 7% range, of higher quality than we had seen in the past, keeping a lid on costs and being more efficient in the deployment of our capital and risk-weighted assets,” says Simon Cooper, chief executive of Standard Chartered’s corporate, commercial and institutional banking division.
“That’s exactly what we’re seeing: strong top-line growth across CIB [corporate and institutional banking] and the commercial bank, costs coming off, and leveraging the network with clients for whom that network is important.”
What’s StanChart good at? There’s the peerless footprint, with roots going back a century or more across the emerging markets, and there’s the product mix, particularly around trade.
When Cooper joined from HSBC he talked about deploying that footprint for clients who can use it and monetizing clients – the lucrative ones for whom they were doing business but not enough and the new ones they should have been serving but weren’t.
Cooper today describes this as network income and can quantify it: it was up 9% year on year in the third quarter.
“And if you look at the returns from those network clients, it is about 270 basis points higher than the returns from purely domestic clients,” he says. Almost 70% of overall CIB income comes from “the network”.
There is an important multiplier effect in covering more products and more markets for these clients, “having a real delta in terms of income and returns,” says Cooper. That might involve bringing foreign exchange into Africa, sustainable finance to clients who haven’t previously had that as part of an agenda, or renminbi business to new customers.
Elsewhere, Karby Leggett’s public-sector business is growing rapidly and coordinates well with the bank’s footprint.
Logically, Standard Chartered should be very exposed to US-China trade war tensions and unrest in Hong Kong. If it is, neither fact is yet manifesting itself in the results.
“Outwardly, one would think that trade wars for a trade bank are bad news,” says Halford. “If you look at what is happening in China, our business has had a great last two years, with on average double-digit growth. The reason is our specialism in cross-border, with the Chinese government clearly still being encouraged to get more flow of capital and flexibility of capital for both consumers and corporates. That is essentially what we have spent 170 years in the country doing.”
In Hong Kong, third-quarter numbers were up year on year, but there’s no question retail spending has dropped.
“Obviously it is not ideal, but business-wise it has not proven to be significantly negative,” Halford says.