Standard Chartered aiming for US$700 million in cost cuts, shares rise

Standard Chartered bank on Tuesday announced plans to cut US$700 million in costs to reduce expenses and improve profitability, a move which will see the lender take a stab at restructuring its operations in under-performing markets such as South Korea, Indonesia, India and the United Arab Emirates.

The strategy is part of the lender’s new three-year strategy to reframe its business and drive growth. The bank plans to hit a return-on-tangible-equity of at least 10% by 2021, which is almost double of last year’s 5.1%.

Standard Chartered said it plans to ‘eliminate residual drags on returns from low-returning markets,’ but did not give notice on whether it would exit from any of the 60 countries where it operates.

Investors cheered on the announcement of the strategy, and the Hong Kong-listed stock rose 2.38% or HK$1.50, at HK$64.50 by closing time on Tuesday.

Target of 10% ROE

The group plans to generate the surplus capital through earnings growth and divestments, it said in the statement.

‘We will achieve this through relentlessly focusing on where we have a distinct competitive advantage, attacking the residual causes of lower returns and ramping-up innovation and productivity,’ the bank’s chief executive Bill Winters said.

‘I feel like we’re through the really hard restructuring that we needed to do to get the bank clean,’ Mr Winters commented in an interview with Bloomberg Television, ‘but we know we have to take the next step to complete our journey to a 10 percent-plus return.’

Shares in the bank have been bleeding roughly 37% of their market value since Mr Winters took the helm in 2015 as the bank struggles to meet its profitability targets.

2018 profit fall below targets

The restructuring efforts led by Mr Winters in recent years have repaired a balance sheet affected by excessive lending in the previous decade, a move which caused the 150-year-old lender problems in lifting its profit.

The US-Sino trade war has hurt the bank’s performance late last year, contributing to the lower-than-expected pre-tax profits of US$3.86 billion for the full year of 2018.

The lender said it is taking a US$900 million charge for the fourth quarter to cover potential regulatory penalties connected to investigations on financial crime in the United Kingdom and United States, including a 102 million-pound (US$133 million) fine from the British financial regulator related to its financial crime controls.

The bank’s operating income last year missed expectations at US$14.97 billion. The bank’s return-on-equity also undershot projections even though it climbed higher from 2017’s 3.5% to 4.6% last year.