11:10 pm - Friday November 6, 2015

Standard Chartered to Close Cash Equities, Cut 2000 Jobs

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Standard Chartered Plc (STAN) is closing its institutional equities business, eliminating about 200 jobs ahead of plans to cut 2,000 more staff as Chief Executive Officer Peter Sands tries to turn the U.K. bank around.

Shutting the loss-making cash equities, equity capital market and equity research operations will save about $100 million in 2016, the London-based bank said in a statement today. It will keep its convertible bonds and equity derivatives businesses, as well as economic and fixed-income research.

Sands, who turns 53 today, plans to cut $400 million of costs this year to stem profit declines that led the shares to plunge the most in six years in 2014. Standard Chartered stands apart from its peers in exiting the business of managing companies’ share offerings as it unwinds an expansion pursued since the global financial crisis.

“The shares (2888) are up today on the news but this announcement is not enough to convince the market that the bank is on the road to recovery,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd., said in an e-mail today. “What we need is a clear statement from management about the way forward.”

Shares of the U.K. bank rose 2.4 percent, the biggest advance in almost three weeks, to HK$114.50 at 2:14 p.m. in Hong Kong trading. They earlier pared gains after reports on the exit. The stock slid 33 percent in Hong Kong last year.
Retail Cuts

About half of the cost savings planned for this year will come from its retail clients business, Standard Chartered said today. The bank cut about 2,000 jobs in the past three months as it focused on key cities and accelerated a switch to digital banking, with a further 2,000 reductions anticipated this year, it said. It shut 22 branches in the second half of 2014 as part of a previously announced target of 80 to 100 closures.

Standard Chartered reiterated in the statement its plans to exit or restructure “non-core” operations. The U.K. bank announced last year the sale or closure of businesses including consumer finance in China, Hong Kong, Germany and South Korea, its retail bank in Lebanon and private banking in Geneva.

The firm will reduce its headcount in Malaysia by 11 percent this quarter, according to a memo obtained by Bloomberg News. Standared Chartered makes about three-quarters of its profit in Asia, where more than 900 of its over 1,600 branches are located, according to its website.
“Investors should feel reassured that Standard Chartered is moving forward on its cost-cutting measures,” Edmond Law, a Hong Kong-based analyst at UOB-Kay Hian (Hong Kong) Ltd., said by phone today. “It’s the right direction to focus on its core business.”

Falling Profit

Earnings are under pressure amid falling commodity prices and a faltering economic expansion across Asia. Pretax profit fell 16 percent in the third quarter to $1.53 billion as impairments for bad loans almost doubled and regulatory and compliance costs increased.

Closing the cash equities business is a “necessary part of cost control,” Hugh Young, a Singapore-based managing director at Aberdeen Asset Management Plc, said in an e-mail today. The firm owns 10.9 percent of Standard Chartered’s shares, data compiled by Bloomberg show.

The closure marks the unwinding of an expansion that included the purchase of Cazenove Asia Ltd. from JPMorgan Cazenove Ltd. to bolster equity capital markets and institutional broking. Cazenove Asia had about 150 employees at the end of 2007, including 30 analysts in Singapore and Hong Kong, Standard Chartered said when it announced the acquisition in November 2008.

Underwriter Ranking

Standard Chartered was ranked 49th among underwriters of equity, equity-linked and rights offerings worldwide last year, according to data compiled by Bloomberg. U.K. peers Barclays Plc and HSBC Holdings Plc were ninth and 11th respectively, the data show. In Asia excluding Japan, Standard Chartered was 16th.

“The fact that they are shutting it down reflects a strategic mistake that they made, if you are generous,” said David Fergusson, chief investment officer of Singapore-based Woodside Holdings Investment Management Pte, who owns the stock. “Despite the fact that they’ve got a very good branch network across Asia, they cannot get money out of the equities business.”

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