"This is not what we aspire to achieve." That was Peter Sands' understated summary of Standard Chartered's worst year in over a decade. There's no prospect of an immediate pickup. But the emerging market lender's chief executive has probably done enough to dispel fears that it needs more capital.
After 10 years of growth, StanChart fell off its pedestal in 2013. Increased competition and worries about emerging markets kept its top line flat, while bad-debt charges jumped 35 per cent. On an underlying basis, pretax profit was down seven per cent. That figure excludes a $1-billion goodwill writedown on StanChart's Korean unit, which is suffering under the government's campaign to reduce consumer debt. While the bank remains upbeat about the long-term prospects in its markets, it expects growth in 2014 to be modest.
At least StanChart has managed to remove the doubts over its balance sheet. Assuming a full implementation of new Basel III rules, the bank's common Tier 1 capital was 10.9 per cent of risk-weighted assets at the end of 2013. That's well ahead of the 8.4 per cent minimum that StanChart says regulators currently demand of it. Selling some peripheral businesses will give reserves a slight boost, and StanChart is refocusing its operations so that they focus on generating capital as well as growth. To prove its confidence, the bank even slightly bumped up its dividend.
The numbers should help to reassure investors who have watched StanChart shares fall almost 30 per cent in the past year. The shares now trade in line with expected book value per share for the end of 2014. That's an undemanding valuation for a bank that should still offer better long-term growth than most of its European peers - and which remains a potential takeover target.
There are risks. The first is further fallout in emerging markets: any economic upset in India, Southeast Asia or China would delay StanChart's recovery. The second is management upheaval: StanChart still hasn't fully explained the machinations behind a boardroom shakeup earlier this year, and has not yet named a replacement for departing Finance Director Richard Meddings. Investors will have to hope that when the board is rebuilt, its belief in StanChart's prospects stays the same.
