EUR 850.00 For Business Accounts Only

Morningstar | Standard Chartered's Restructuring Is Starting to Bear Fruit

Standard Chartered’s massive upheaval is starting to bear fruit with improved profitability. The turnaround has been difficult, but we think CEO Bill Winters has the right approach. He’s identified issues with the bank’s risk controls, culture, cost base, and overall across markets and products where it lacks the necessary scale to be competitive. In our view, structural changes in the banking sector from heightened regulatory compliance and capital requirement mean the bank’s days of consistent midteens return on equity are behind it. The bank is targeting a return on equity of 8% in the medium term, and we forecast increases towards this target over our explicit forecast period.Standard Chartered has nearly completed its initial restructuring plans, and we expect the majority of its restructuring to be behind it in 2018. The firm has nearly completed $3 billion of head count and branch rationalizations and restructuring another $100 billion of risk-weighted assets (roughly 30% of the bank) to deliver improved returns. It has also almost completed a $3 billion-plus investment program to upgrade systems to better handle compliance, while also boosting efficiency via digital means. In our view, the need for stronger internal compliance functions and underwriting standards is critical, given the bank’s focus on higher-growth geographies in Asia, Africa and the Middle East, which also come with higher risk.We think the bank’s more targeted strategy across both retail, and corporate and institutional banking will deliver lower-risk growth. In corporate and institutional banking, which makes up more than half of the group’s operating income, the bank places a greater focus on existing clients with global banking needs. This include functions in cash management, trade finance, and financial markets. The affluent segment within retail banking in developed markets such as Hong Kong and Singapore is the target for multiple banking and wealth management products. The application of technology better aligns costs, with more complex transactions occurring at the branches, and its contact centre and digital platforms catering for simpler transactions and enquiries.