Never believe a big bank that boasts that its culture is so different: its lending principles conservative, its business immune to the traditional banking vices of over-confidence, over-expansion and bad behaviour.
For a decade, Standard Chartered told us that its rising income and profits flowed from a unique winning formula. Here was chairman John Peace in the annual report a few years ago describing the supposed magic: “2012 was another year of good performance for Standard Chartered, thanks to a consistent strategy, a stable management team, supportive clients, customers and shareholders, and, above all, our great people.”
The fact that Standard Chartered had just been whacked with heavy fines for busting US sanctions was a mere detail. The unabashed title of that annual report was Leading the Way. The word “resilient” was used 13 times to describe everything from the business model to the balance sheet.
Since then, Standard Chartered’s share price has been in full retreat. A bank valued at £19-a-share during its supposed golden decade now finds itself going cap in hand to shareholders for £3.3bn in a rights issue pitched at 465p a share. Humiliating stuff. A small shift in economic breezes in Standard Chartered’s core Asian markets has blown the bank completely off course.
Bill Winters, the new, straighter-talking, regulator-friendly chief executive, brings the promise of firm action, as opposed to the tweaks and “refreshes” of predecessor Peter Sands’ later years.
Winters thinks he can manage with 15,000 fewer people from a workforce of 86,000, a staggering level of reduction; a loan book too heavily concentrated on Asian commodity firms will be overhauled; and perennial underperforming units in Korea and Indonesia will be tackled, though detail was thin. One growth area is compliance, where Standard Chartered wants to “make a meaningful contribution to fighting financial crime” – a welcome and overdue change in attitude.
Yet it will all take time. Winters’ horizons are set on 2020, which is when a return on equity of 10% is pencilled in. At a push, one might agree that there is still “an outstanding franchise” at the heart of Standard Chartered. But the bank was loss-making in the last quarter as revenues tumbled 18% on a year ago and impairments more than doubled. Given the cost of restructuring, City analysts understandably wonder whether £3.3bn of new capital will be enough.
The big long-term shareholders – Temasek, from Singapore, and our own Aberdeen Asset Management – are obliged to sound supportive, swallow the lack of a final dividend and back the rights issue. But they should also look in the mirror. The market smelled trouble at Standard Chartered for at least two years, but the pressure from the wings rarely rose above the level of mumbles. Temasek and Aberdeen were too willing to believe the boasts from the highly remunerated boardroom about Standard Chartered’s specialness.
The consquences of delay are now horribly clear: a decade of chasing growth will be followed by half a decade of clean-up and cost-cutting. This story could have been different.
Witty buys GSK time after takeover talk
Sir Andrew Witty, GlaxoSmithKline’s chief executive, declined to comment on the FT’s story that the UK’s biggest pharmaceuticals firm rejected a tentative takeover approach from Pfizer of the US a few weeks ago. But it’s not hard to guess what Witty might have said. Something like: Big Pharma’s record on big mergers and acquisitions is mixed, at best, and often lousy; and, anyway, GSK has a splendid independent future.
Witty has sung the first half of that tune since he got the top job in 2008. The second part has been constant refrain, too. It’s just that convincing outsiders to share a rosy vision of life after Advair, the asthma drug that has been the biggest earner in recent years, is proving tricky.
Tuesday – GSK’s first research and development showcase for years – was billed as a key moment for Witty to display the wonders about to appear from the labs. Around 40 potential new medicines and vaccines were paraded; four-fifths were described as “first-in-class”, meaning they are designed to be novel drugs as opposed to improvements on old ones; and GSK gave a strong account of how its progress in oncology continues despite the sale to Novartis last year of its established portfolio of cancer treatments.
The market, though, declined to be dazzled: the share price slipped 1.5%. Perhaps the underwhelming response reflected the fact that GSK didn’t lift its earnings forecasts from May. That feels too churlish. The layman’s hunch here is that not all innovation in pharma land will emerge from the whizzy biotech firms. It surely would not be a surprise if GSK proves old dogs can learn new tricks.
Witty’s critics have become more vocal as GSK’s share price refuses to rise. But he said enough on Tuesday to allow the standalone prescription to be given more time to work. Pfizer’s tax planners were not needed.
guardian.co.uk © Guardian News and Media Limited 2010