Standard Chartered - no rush for income investors

Standard Chartered (STAN.L): When I wrote on this stock, last October, the shares were 1000p and it was clear that Peter Sands was under pressure. The loss of momentum at the group was worrying and there seemed no rush to invest. Since then there has been a near total clear out of the board, with American career banker Bill Winters installed as the new CEO. In this week’s interim results, to 30^th June 2015, he pulled few punches, with the regime of Peter Sands being openly criticized, in particular for being over-expansive, (“bigger doesn’t necessarily mean better”). The previous regime’s legacy of regulatory stink bombs is not helping the mood music either. The strategy now is to simplify and de-risk the group, both through leaner, simpler management structures and fewer business strands. Year on year operating income was down 8% to $8.5bn, but pre-tax profits were down by 44% to $1.8bn, reflecting increased loan impairments. The shrinkage of the business is seen in risk-weighted assets coming down 5% to $326bn. The net tangible asset value is 1586c, down 3.7% on 1647c a year ago. As a result normalized eps fell 50% to 48.7c and the return on equity came down to 5.4% from 10.4%, but management succeeded in pushing core tier 1 equity up to 11.5% from 10.7%. This is inside their target range of 11-12% and they are on track to save $400m in costs and shrink RWAs by $25-30bn before year-end. In the midst of such pain the dividend has suffered too, with a 50% cut being unveiled. In a full year this will keep an extra $1bn or so in their coffers. The question of domicile is also mentioned, with the hint being that George Osborne has done enough to tilt the odds firmly back in favour of staying in the UK.

Normally all this might seem like a new boy’s kitchen sink, but it seems that it might only be a hand basin, with no promises that there won’t be further hits. (“I have not yet completed my review of the book”). The question of whether fresh equity will be needed has been left open and any such issue might further impact the reduced dividend. (“The decision to rebase the dividend reflects our current profile and not the outcome of the ongoing strategic and structural changes”). The long-term prize of being a major player in expanding Asian economies is still there to be taken, but these are gloomy days. The shares might be trading a bit below their TNAV of about 1016p (1586c @£:$1.56), but this may flake further as Bill Winters shines his torch into more dark corners. The shares rallied on the management changes but, at 930p, the shares have come down about 10% in the last three months as Bill Winters has spread a chill amongst followers. With the possibility that this hand basin will be followed by another (or worse?) in February, there is still no rush for income investors to clamber on board. (Neil Cumming^, 7^th August 2015)

These comments are not a personal recommendation to deal. Any investments can fall as well as rise in value, so you could get back less than you invest. I may have a financial interest in some of the stocks written about. www.dividendpower.co.uk or e-mail at info@dividendpower.co.uk  Twitter:  @DividendPower