Standard Chartered humiliated as first loss since 1998 forces cash call

Pre-tax losses for the three months to September were $139m

‘London will take hits in the context of Brexit,’ the bank boss said (Getty)

Standard Chartered has been forced into a humiliating and expensive rights issue after the struggling emerging markets lender slumped to its first quarterly loss in 17 years.

Pre-tax losses for the three months to September were $139m (£90m), when City analysts had been expecting $900m of profits. The last time the bank reported a loss was in the Asian financial crisis in 1998.

The new boss Bill Winters, who took over from Peter Sands earlier this year, announced a £3.3bn capital issuance plan – representing almost 20 per cent of the bank’s market capitalisation – to shore up the balance sheet. He also scrapped the final dividend for the year. The market took the update badly, with the shares falling 10 per cent before closing down nearly 7 per cent at 666p.

The bank blamed the wretched performance on “challenging conditions in key markets” as well as weak commodity prices. There was a spike in loan impairment charges as the bank tightened “risk tolerance levels”.

The rights issue, at 465p per share on a basis of two new shares for every seven held, represents a considerable volte face. The previous management had strongly insisted the bank’s capital position was comfortable and it would not need to tap shareholders for extra cash.

Mr Winters, a former boss of JP Morgan’s investment bank, said the “aggressive and decisive set of actions” were necessary to nurse the bank back to health after a torrid two years, scarred by regulatory punishments and hefty writedowns.

“The need for change is very clear” Mr Winters said. “Our returns have been sliding, not just absolutely but also against our peers. The business environment in our markets remains challenging and our recent performance is disappointing.”

As well as the capital issuance the bank will cut costs, reducing its 86,000 head count by 15,000 by 2018. In contrast with the bosses of the UK’s other emerging market focused bank, HSBC, Mr Winters said he was not considering a relocation of Standard Chartered’s headquarters. “It’s absolutely not a priority for us,” he said. “We have an enormous execution agenda and we find the UK to be a very pragmatic and predictable place to do business”.

Standard Chartered’s share price hit almost £19 in March 2013. Since then the shares have plummeted by 62 per cent after a wave of writedowns.

Analysts at Société Générale said that there were major risks ahead for the bank. “Balance sheet restructuring programmes often make the numbers look worse before they get better as revenues disappear faster than costs or capital [is added],” they said.

An analyst at UBS described it as “one of the most significant repositionings of a large financial group we have seen.”

Standard Chartered said it was targeting an 8 per cent return of equity for 2018 and 10 per cent in 2020. Mr Winters said the fundraising had been presented to the Prudential Regulation Authority which had “raised no objections”. But he could not say whether it would ensure the bank passes the Bank of England’s stress test, whose results are due next month.

He also said the bank is still facing two UK inquiries into money laundering and several in the US, including Iran sanctions busting. The rights issue has been fully underwritten and is being taken up by the Singaporean sovereign wealth fund Temasek, which holds a 15.8 per cent stake.