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Standard Chartered to cut 15,000 jobs after posting unexpected loss

Standard Chartered Plc will cut 17 percent of its workforce as soaring impairments added to Bill Winters’s woes, underlining the new chief executive officer’s challenge in turning around the bank as he tapped investors for $5.1 billion. The shares plunged.

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The bank unveiled 15,000 job losses as it seeks to save $2.9 billion by 2018, according to a statement Tuesday. Standard Chartered will also restructure or exit $100 billion of assets after it reported an unexpected third-quarter loss of $139 million. That’s down from a profit of $1.5 billion a year earlier. Winters scrapped the bank’s dividend for the second half, the first such move since at least 1988, to save about $700 million.

Winters, 54, is seeking to reverse damage caused by predecessor Peter Sands’s expansion in emerging markets such as China and India, which has saddled the lender with bad loans and eroded earnings over the past two years. His fundraising plan comes as British regulators prepare a second round of stress tests next month, with some analysts predicting a capital gap of as much as $10 billion at Standard Chartered.

‘Not Enough’

“Poor underlying performance is the real story today despite the strategic review,” said Joseph Dickerson, an analyst at Jefferies International Ltd., who has an underperform rating on the stock. “The bank has not raised enough capital in our view -- today’s capital raise is the exact amount raised in 2010 -- it was not enough then and is unlikely to be now.”

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Standard Chartered shares fell 6.5 percent to 667.4 pence at 9:22 a.m. in London. They have dropped about 31 percent this year, the worst performer among Britain’s five largest lenders.

The sweeping job cuts, part of creating a “simplified” structure, are on a gross basis, Standard Chartered said. The London-based lender had about 86,000 employees at the end of June. Under former CEO Sands, who presided over a decade of growth uninterrupted even by the global financial crisis, the bank ruled out a capital increase, instead focusing on cost cuts.

Stress Tests

Standard Chartered is seeking to bolster its capital buffer ahead of a tougher round of stress tests as the Bank of England turns its focus on mounting risks abroad. The central bank will assess the resilience of seven U.K. lenders against a slump in the Chinese economy, a drop in oil prices and a prolonged period of deflation.

“The timing is just about right,” Winters said, when commenting on the capital increase. The CEO said he didn’t move faster, despite the shares falling 39 percent since he started June 10, because he “didn’t want to have a half-baked strategy,” he added.

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The two-for-seven rights issue offered at 465 pence per share will boost the lender’s common-equity Tier-1 capital ratio to 13.1 percent from 11.5 percent as of June 30, the bank said. Temasek Holdings Pte, the largest shareholder, will take up rights for 15.8 percent of the firm’s existing share capital, according to the statement.

Besides strengthening the balance sheet, the capital raising will help fund a planned $3 billion investment over three years into “strategic opportunities,” technology and upgrading regulatory and compliance systems, the lender said.

Martin Gilbert, CEO of Aberdeen Asset Management Plc, which is the bank’s second-largest shareholder after Temasek, said that he’s “supportive” of the rights issue and strategy.

‘Big Changes’

“We have announced a strategy that makes big changes to how we will manage ourselves going forward,”  Winters said in a statement. On a conference call, he added the bank could restore a reputation that had been “a bit tarnished over the past few years.”

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On the first day in the job, Winters pledged to strengthen Standard Chartered’s “financial position and re-orient the bank for better returns on capital.” A month later, the former co-head of JPMorgan Chase & Co.’s investment bank appointed a new management team reporting directly to him to speed up cost cuts.

“It may be that this kitchen sinking prepares the ground for a real turnaround,” said Richard Hunter, head of equities at stockbroker Hargreaves Lansdown in London. “Further out, the group’s exposure to the regions which are causing it problems today may yet return to being an asset rather than a liability.”

Job Cuts

Winters’s job cuts follow competitors Deutsche Bank AG and Credit Suisse Group AG outlining in recent weeks plans to eliminate about 32,000 positions combined. Barclays Plc, which is led by Winters’ former JPMorgan colleague Jes Staley, last week cut its profitability target for 2016 amid rising charges for misconduct and restructuring. UBS Group AG on Tuesday postponed next year’s profitability target.

At Standard Chartered, which generates most of its revenue in Asia, income dropped 18 percent to $3.7 billion in the third quarter from a year earlier, while impairments on loans more than doubled to $1.2 billion. The surge in bad loans “reflects continued adverse trends in particular in India and commodities,” the bank said.|

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“We have identified $20 billion of risk weighted assets outside of our current risk tolerance of $320 billion total” and “we will liquidate these,” Winters said on a call. “The bank is not full of highly concentrated exposures” to single companies

The third-quarter loss reflects “challenging conditions in the group’s key markets” as well as “depressed commodity prices and the broader impact of the slowdown in China,” the bank said in the statement. Analysts in a Bloomberg survey had forecast a pretax profit of $903 million in the period, with revenue seen at $4.1 billion.

‘Disappointing Performance’

HSBC Holdings Plc, which also generates most of its earnings in Asia, said on Monday third-quarter pretax profit rose 32 percent to $6.1 billion, beating analyst estimates, as lower operating costs and litigation charges offset a drop in revenue.

“The business environment in our markets remain challenging and our recent performance is disappointing,” Winters said. “We will execute as quickly as possible to get through this transition phase.”

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All four of the bank’s divisions reported a drop in revenue in the third quarter, with a 18 percent decline to $2.1 billion at the corporate and institutional business, the largest unit. The retail business had revenue of $1.3 billion, down from $1.5 billion.

Winters’s Targets

Standard Chartered targets a return on equity, a measure of profitability, of 10 percent, with Winters seeking to expand assets under management at the private banking and wealth management to $25 billion by 2018. Income from wealth management was $399 million in the third quarter, down 9 percent in the year.

At Credit Suisse, Switzerland’s second-largest bank, new CEO Tidjane Thiam said last month that he plans to focus on wealth management, when cutting some 5,600 jobs and tapping investors for 6.05 billion Swiss francs ($6.1 billion).

“If everyone’s trying to do it it’s going to be a bit of a struggle,” said Alan Higgins, chief investment officer at Coutts & Co. in an interview on Bloomberg Television, referring to Winters’ push to follow other banks in growing asset management. However “Standard Chartered, I imagine would focus more on the Asian market and they’re pushing on an open door there with all of their connections.”

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