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Nuclear Winters

26 February 2015 By Peter Thal Larsen

An “orderly succession plan balancing stability with fresh perspective.” That’s how Standard Chartered described the boardroom clearout which led to the departure of Chief Executive Peter Sands, its Asia head, its chairman and three non-executive directors. Others might have used a more violent expression. For anxious investors, regulators and employees the arrival of Bill Winters as CEO is welcome. But the ex-JPMorgan executive will face an overflowing inbox when he takes charge in June.

Sands’ time was running out as soon as it emerged StanChart had hired headhunters to search for a replacement. The former McKinsey consultant steered the bank through the financial crisis, but has struggled to get a grip on costs as growth in emerging markets slowed. The bank is expected to report its second consecutive decline in full-year profit next week. The share price has almost halved in two years.

Winters is a reassuring choice. As co-head of JPMorgan’s investment banking arm, he was a contender for the top job before falling out with Chairman and CEO Jamie Dimon. He is on good terms with the Bank of England, StanChart’s lead regulator, and enjoys the support of Singapore’s Temasek, its largest shareholder. His willingness to turn his back on Renshaw Bay, the boutique asset manager he founded after leaving JPMorgan, suggests he sees potential for a turnaround. And he is well placed to lure the executives needed to replenish StanChart’s senior ranks, which will probably thin further in the coming months.

But hiring is just one of Winters’ challenges. He must also re-examine the bank’s exposure to the commodities sector and to China, both of which are showing signs of strain. Any significant writedowns will affect StanChart’s capital base, which investors already regard as thin. A capital hike might reassure the market, and is easier for a newcomer to undertake, but would also make it harder for StanChart to rebuild a return on equity that fell below 9 percent last year. Finally, Winters has to resolve a long-running dispute with U.S. regulators about the bank’s money-laundering controls.

StanChart’s overdue succession plan removes one of the many questions facing the bank. However, it is only the first step.

 

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