StanChart cuts unwanted loans by US$13bn, including Essar

By Steve Slater

LONDON, Nov 1 (IFR) - Asia-focused bank Standard Chartered (BSE: 580001.BO - news) said its liquidation portfolio of loans it no longer wants was reduced by US$13bn last month, marking a major step in its turnaround plan.

A trading update on Tuesday showed the bank still faces a number of problems, however. It revealed it is under scrutiny from Hong Kong regulators for its advisory work on a 2009 initial public offering and said markets in Asia remain tough.

Standard Chartered said its US$19bn liquidation portfolio had reduced by US$13.2bn of risk-weighted assets since the end of September to about US$6bn.

Analysts said most of the reduction was likely to have been related to Indian conglomerate Essar Group, which last month sold its holding in Essar Oil (BSE: ESSAROIL.BO - news) and Vadinar port for US$12.7bn.

Standard Chartered declined to comment on specific deals, but finance director Andy Halford indicated the decline was due to a small amount of exposures. "There has been a significant amount of progress in a fairly short period of time," he said.

The bank provisioned for losses in its liquidation portfolio last year and did not make any further losses on the loans.

"We have exited at pretty much where we thought we were going to be," Halford said.

The reduction will lift the bank's common equity capital ratio by about 50bp. It was 13% at the end of September.

Standard Chartered is getting rid of loans that were made in the past but are now outside a new risk tolerance set by Bill winters, the former JP Morgan investment bank boss who became chief executive in June 2015.

Winters said the bank's measured approach to getting rid of unwanted assets was vindicated, and he said the portfolio should be liquidated within his target of 18 months to two years set a year ago. That would be between May and November 2017.

"The progress we've made in the past year took a while and probably took longer than we wish it had, but the benefit of waiting and being properly reserved was that we could hold out for the transaction structure and terms that suit us," Winters told reporters on a conference call. "We'll do the same thing with the next US$6bn."

HEADWINDS

Winters faces a number of other challenges, however.

Standard Chartered said Hong Kong's Securities and Futures Commission intended to take action against it in relation to its role as joint sponsor of an IPO on the Hong Kong Stock Exchange in 2009.

Swiss bank UBS (LSE: 0QNR.L - news) last week said it was being investigated over its role as sponsor of certain Hong Kong stock market listings.

Standard Chartered said it was only being investigated related to one IPO, and declined to comment if it worked alongside UBS on that deal. Standard Chartered exited equity capital markets in January 2015.

It said markets in Asia also remained tough, raising concern about prospects for its revenue growth.

Group income in the third quarter was US$3.47bn, down 6% from a year ago. It reported an underlying profit of US$458m, compared to a US$139m loss a year ago.

Standard Chartered's shares fell 5% to 676p, although they are still up 20% this year, compared to a 17% fall by Europe's banking sector.

Income in Standard Chartered's corporate and institutional banking was down 7% for the third quarter compared with the same period a year ago to US$1.6bn, at a time when most rival investment banks have reported bumper trading results.

Winters said the bank's debt capital markets activity was a bright spot, but emerging markets had not seen as strong a rebound in capital markets activity as the US and Europe last quarter.

"I don't think we're losing ground in our chosen markets, but our particular profile as an emerging markets bank was less favoured in this quarter," he said.

Financial markets income rose 15% to US$714m, as credit and capital markets jumped 55% and rates grew 4% on the year, offsetting a 31% fall in foreign exchange revenues.

Corporate finance income fell 19% to US$421m. (Reporting by Steve Slater)