Standard Chartered exits cash equities, eliminates 4,000 jobs

Standard Chartered Plc is shutting its institutional equities business and eliminating about 4,000 jobs at its consumer operations as Chief Executive Officer Peter Sands seeks to restore the U.K. bank’s profit growth.

The bank is “on track” to lower costs by at least $400 million this year after eliminating about 2,000 consumer-banking jobs in the past three months, with plans to cut that many again in 2015, it said in a statement from London Thursday. Shutting the unprofitable cash equities, equity capital market and equity research operations will result in about 200 job losses and save about $100 million in 2016, it said.

Sands, who turned 53 Thursday, has been under pressure to cut costs and stem faltering earnings that sparked the biggest slump in shares last year since the global financial crisis in 2008. Royal Bank of Scotland Group Plc, the U.K.’s largest government-owned bank, has also shut its cash equities and equity capital markets operations as regulators pressure banks to hold more capital versus risks.

“The shares are up today on the news but this announcement is not enough to convince the market that the bank is on the road to recovery,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd. with an underperform rating, said in an email. “What we need is a clear statement from management about the way forward.”

Shares rose 2.4 percent to 984.80 pence at 9:17 a.m. in London, increasing as much as 3.5 percent, the biggest intraday gain since October. The stock plummeted 29 percent in London last year, the worst performance among major U.K. banks.

The bank said it’s trimming its consumer business as it focuses on key cities and accelerates a switch to digital banking. It shut 22 branches in the second half of 2014 as part of a previously announced target of 80 to 100 closings, which will help cut costs by about $200 million in 2015.

Cash equities is “a small business and a loss-making one so knocking it off for a struggling bank is a good move,” said Chirantan Barua, a London-based analyst at Sanford C. Bernstein, who has an underperform rating on the bank.

Barua added that “$400 million in cost saves are a good start, but doesn’t really solve for structural problems in profitability or capital.”

Standard & Poor’s downgraded the bank in November for the first time in 20 years, after the lender forecast a second year of declining profits. Standard Chartered reported declining revenue, increasing operating expenses and higher loan impairments in the third quarter.

Most of the jobs cut from the equities withdrawal are in Asia, a spokesman for Standard Chartered said, asking not to be identified. Of those, Hong Kong had the largest number, with jobs in Singapore, India, South Korea and Indonesia also affected, he said. The bank will keep convertible bonds and equity derivatives businesses, and economic and fixed-income research.

The firm will reduce its headcount in Malaysia by 11 percent this quarter, with cuts stretching across areas including marketing and consumer operations, according to a memo obtained by Bloomberg News. Standard Chartered declined to comment on the document or the number of employees involved. More than 900 of Standard Chartered’s more than 1,600 branches are in Asia, according to its website.

Standard Chartered reiterated its plans to exit or restructure “non-core” operations. The remaining $200 million of cost savings targeted this year will come from “other client segments, product groups and global functions,” the bank said, without giving details.

The U.K. bank announced last year the sale or closing of businesses including consumer finance in China, Hong Kong, Germany and South Korea, its retail bank in Lebanon and private banking in Geneva.

“Investors should feel reassured that Standard Chartered is moving forward on its cost-cutting measures,” said Edmond Law, a Hong Kong-based analyst at UOB-Kay Hian (Hong Kong) Ltd.

“It’s the right direction to focus on its core business.”

Earnings are under pressure amid falling commodity prices and a faltering economic expansion across Asia, where the bank makes about three-quarters of its profit. Pretax profit fell 16 percent in the third quarter to $1.53 billion as impairments for bad loans almost doubled and regulatory and compliance costs increased.

Closing the cash equities business is a “necessary part of cost control,” Hugh Young, a Singapore-based managing director at Aberdeen Asset Management Plc, said in an email Thursday. The firm owns 10.9 percent of Standard Chartered’s shares, data compiled by Bloomberg show.

The closing marks the unwinding of an expansion that included the purchase of Cazenove Asia Ltd. from JPMorgan Cazenove Ltd. to bolster equity capital markets and institutional broking. Cazenove Asia had about 150 employees at the end of 2007, including 30 analysts in Singapore and Hong Kong, Standard Chartered said when it announced the acquisition in November 2008.

Standard Chartered was ranked 49th among underwriters of equity, equity-linked and rights offerings worldwide last year, according to data compiled by Bloomberg.

U.K. peers Barclays Plc and HSBC Holdings Plc were ninth and 11th respectively, the data show. In Asia excluding Japan, Standard Chartered was 16th.

“The fact that they are shutting it down reflects a strategic mistake that they made, if you are generous,” said David Fergusson, chief investment officer of Singapore-based Woodside Holdings Investment Management Pte, who owns the stock. “Despite the fact that they’ve got a very good branch network across Asia, they cannot get money out of the equities business.”