StanChart eyes bank stake sales as it tries to slim down

Standard Chartered’s abrupt move to shut its global equities business last week could be a prelude to the lender selling off stakes in a number of Asian banks as it looks to boost capital, people familiar with the lender’s thinking said.

The most likely potential sale is Standard Chartered’s $621 million holding in Agricultural Bank of China Ltd (AgBank), a person with direct knowledge of the situation said.

The bank’s 45 percent stake in Indonesia’s PT Bank Permata, valued at around $638 million, could also be sold, though that deal would probably come after an AgBank stake sale, people close to the bank said.

Early this month Standard Chartered moved aggressively to reverse its flagging fortunes by closing the bulk of its global equities business and axing 4,000 jobs in retail banking.

But Chief Executive Peter Sands is under pressure to cut costs and bolster capital levels further, as the bank grapples with potential losses from commodities loans that could mean it needs $4.4 billion in extra provisions.

“It was an easy decision to get rid of the equities business but there are other things the bank could be doing,” said a former Standard Chartered executive.

The change in the banks fortunes reflects the fact its focus on emerging markets and commodities has flipped from being a strength to a weakness in the current economic climate.

“The tailwinds that benefited Standard Chartered from 2008-2013 became headwinds in 2014,” Jefferies analysts said in a note this week.

Having minority stakes in other banks has become less attractive to lenders like Standard Chartered as new rules mean they now have to hold more capital against those holdings.

Bankers cautioned though that there is no active sale process for any of these assets.

A spokeswoman for Standard Chartered declined to comment. Sources were not authorised to speak publicly about the matter due to client confidentiality.

The stake in Indonesia’s Bank Permata could attract interest from Asian banks, especially Japanese lenders, bankers who have worked on similar deals told Reuters. Japanese banks have been aggressively expanding into Indonesia amid sluggish growth at home.

 

Standard Chartered teamed up with Indonesian trading firm Astra International to buy a controlling stake in Permata in 2004. Any sale could be complicated though by the agreement that binds Standard Chartered with Astra.

Standard Chartered also owns a 15.4 percent stake in Vietnam’s Asia Commercial Joint Stock Bank valued at about $105 million, while in China it holds a 20 percent stake in unlisted China Bohai Bank for which it paid $123 million in 2005.

However any sale of stakes in Chinese banks is likely to be handled discreetly for fear of upsetting the authorities and giving off the impression the bank is exiting the country.

That means Standard Chartered may choose to exit Bohai bank by listing it on the stock market, the people familiar with the bank’s thinking added.

Other divestment, aside from bank stakes, could also be on the cards.

Standard Chartered has already sold a bundle of investments made by its private equity arm worth about $530 million, a source with direct knowledge of the matter said.

That deal was concluded at the end of last year, the source added, declining to be identified as the deal was not public.

Standard Chartered’s leasing unit Pembroke, which it bought in 2007 and which operates a fleet of 98 aircraft according to the company website, could also be put up for sale. The bank’s aircraft and ship leasing portfolio was worth $4.9 billion at the end of 2013, according to the bank’s annual report.

Selling more sizeable units such as the profitable aircraft leasing business would be painful for Standard Chartered, but may ultimately prove necessary.

“They need to take some big decisions, this band-aid approach will not fix the problem,” one person close to the bank said.