Standard Chartered PLC (SCBFF) announced its exit from the institutional cash equities, equity research as well as equity capital markets (ECM) operations as part of its ongoing restructuring program to curb costs and shift focus on core business in order to revamp the bank, the shares of which plunged more than 33% in 2014.
Current Step
The closure of unprofitable global equity businesses is in sync with the bank’s long-term strategic cost-cutting plan. This move is expected to result in cost savings of around $100 million in 2016 and will affect 200 jobs, nearly all in Asian countries such as Hong Kong, Singapore, India, South Korea and Indonesia.
Moreover, last year, Standard Chartered revealed its goal to attain $400 million of cost savings in 2015. The bank is already on track to achieve the targeted cost savings, which are anticipated to largely mitigate costs incurred from the restructuring and reconfiguring measures undertaken by the bank.
Other Cost-Cutting Initiatives
Job Cuts: In order to digitalize operations in major cities and speed up growth in its Retail Clients division, Standard Chartered slashed or announced its decision to slash around 2,000 jobs in the last three months and is further expected to eliminate 2,000 more posts during 2015.
Branch Closure: The bank initiated the process of shutting down 22 branches in the second half of 2014 in its Retail Clients division and further targets to close 80 to100 branches in the near term.
Both these steps to trim the consumer business will save around $200 million in 2015. The remaining cost savings required to achieve the 2015 target will be contributed by the bank’s continuing relevant actions in other client segments, product sets and international functions.
Our Take
Standard Chartered’s profitability has been under considerable pressure owing to the increasing bad loans, rising regulatory strain, declining commodity prices and overall slow economic growth especially in Asia, which is the key contributor to the bank’s profit.
The cost-cutting initiatives of the bank will surely help in easing off the steam to some extent and boost the capital deployment activities. However, this will not work out the organizational hitch that threatens the bank’s profitability.
Other global banks treading the similar cost savings path to improve efficiency are Wells Fargo & Company (WFC), Citigroup Inc. (C) and HSBC Holdings plc (HSBC). The latter two banks are streamlining their retail banking operations.
Currently, Standard Chartered holds a Zacks Rank #5 (Strong Sell).
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