CFA Society Singapore
SINGAPORE (Jan 21): Standard Chartered’s largest investor Temasek has grown frustrated with the slow pace of chief executive Bill Winters’ turnround, according to a report by The Financial Times of UK, and is stepping up pressure on the UK-listed bank ahead of his pivotal strategy update in February.
The Singapore state investment company, which owns about 16% of StanChart, was reported by FT to be asking for more frequent and detailed briefings from top executives and even floated the prospect of taking a board seat in a meeting last year, two people with knowledge of the discussion told the daily.
That would be an unusual step for the US$300 billion ($408 billion) group, which rarely takes non-executive positions or gets involved in the day-to-day operations of its portfolio companies, indicating the level of their concern, the people said.
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Since Winters took over in June 2015, the bank’s share price has fallen almost 40% — deeply underperforming most rivals — and trades at about GBP 6 ($10.50) today compared with a price of GBP 15.24 when Temasek first bought in during 2006. That leaves the Singapore fund sitting on billions of pounds in paper losses.
FT says the bank, which is focused on Asia, the Middle East and Africa, is going through a difficult cycle and that is why the intensity of engagement has increased, said a source close to the investor. Temasek “are more patient than most, but it is not never-ending . . . There needs to be more evidence of a turnround soon.”
Temasek had asked the bank’s executives why, even after three years of restructuring, they are unable to generate close to the double-digit return on equity (ROE) enjoyed by Asian rivals such as Singapore’s DBS Group, another of its major investments with a 29% stake.
“StanChart’s profitability is about half its regional peers; an ROE of about 6% makes no sense for an Asian and emerging markets bank,” said Ronit Ghose, global head of banks research at Citigroup. “Long-suffering shareholders naturally expect much higher returns and the strategy update is a chance to give them greater visibility on the upsides from cost and capital optimisation.”
Fears of a Chinese economic slowdown and the trade war between the US and China have weighed on the bank. Greater China, and specifically Hong Kong, is the lender’s most important region where it makes 40% of its revenue at the best profit margins. Reflecting this and other issues, the bank currently trades at less than half the book value of its assets.
The Singapore fund previously offered to play a bigger role in the bank’s affairs and appoint a non-executive representative when it first bought in, but was rebuffed by the former management team led by Peter Sands, a separate person involved in those discussions said.