Case Study: Disappointing Standard Chartered

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Disappointing Standard Chartered continues with more of nothing in 2015 …
Standard Chartered is not achieving anything constructive by implementing cost cutting strategies.
By getting rid of their equity desks, it becomes clear Standard Chartered should never have started this path in the first place.
Nevertheless, the path of keeping the much criticized CEO in place is the wrong one.
Standard Chartered has enough potential to offer in 2015 as they are most likely going to cruise to lower values. After I wrote my last article on Standard Chartered (SCBFF) in November 2014 which covered the potential take-over of ANZ, it’s been relatively quiet on the Standard Chartered front for the last months. Hence the share price has barely moved and
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But in the past two years the stake has almost halved in value to £4.3bn. The stock is now at least a quarter below the price at which Temasek invested in 2006 and 2007.
Temasek will remain an important pawn in the potential story of Standard Chartered.
Cutting workforce
Standard Chartered recently announced to further reduce its workforce by 2000 in total 4000, and close up to around a 100 branches in Asia. In the second half of 2014, 22 branches have been closed. In total this move would cut around 5% of its total workforce.
Furthermore, Standard Chartered will close it’s equity business line (started in 2008) which yields around a 100 million a year, however non profitable. This should save up to a 100 million per year form 2016 onwards. Nevertheless, this move seems like a sudden and desperate move.
Standard Chartered had been hiring staff in the division, which involves underwriting stock offerings for companies, as recently as October. The decision to get out of the business comes despite a boom in equity underwriting in Asia that saw fees for the industry rise 74% in
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The rationale behind the cost cutting would be to save around 400 million in 2015. Even though it’s still facing criminal charges by the US which got deferred for 3 years, after being fine 400 million 2 years ago after breaching US sanctions towards Iran.
Some senior personnel is leaving, however the one criticized the most, Peter Sands the CEO, remains. Interesting, as Peter said the following on the 8th of January 2015:
“We are continuing to take significant action by exiting or reconfiguring non-core and under performing businesses.”
I’m sure most of the shareholders and investor of Standard Chartered find him a non-core and underperforming business.
Additionally, if the US economy will rebound the FED will most likely start to raise interest rates (one way or another). As result emerging market companies will find it more difficult to service their loans which could ultimately end up in a few defaults.
Consensus Forecast
Normally I am not a keen follower of what analysts have to say in regards of stock recommendations. Nonetheless, in the case of Standard Chartered it fits the story wonderfully well. Source:

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