Standard Chartered can cover the $4bn capital gap expected to be revealed by U.K. stress tests without raising new money from investors, as it can generate $6bn by streamlining its retail bank and ending partnerships with other financial institutions, Goldman Sachs said.
Bloomberg News reports that the bank can free up $2bn of capital by closing retail operations outside Hong Kong, Singapore and South Korea that are too small to be efficient, a further $1bn by selling stakes in lenders such as Agricultural Bank of China, and the remainder by abandoning low-returning clients and businesses, Goldman said in an October 7 note.
The analysts upgraded the lender to buy and forecast a return of 27% once the management restructuring is complete.
'While we incorporate a $4bn capital shortfall in our valuation, we see scope for new management to restructure the company, addressing both capital and returns', analysts led by Martin Leitgeb said. 'This year’s emerging-market focused stress test will be the binding capital constraint for StanChart. Consequently we expect the start of December to bring clarity on the bank’s capital position' and clear the way for a strategy update, they said.
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