By Sumeet Chatterjee and Lawrence White
HONG KONG/LONDON (Reuters) - Standard Chartered (LON:STAN) PLC has unveiled plans to double returns and dividends in three years by cutting $700 million in costs and boosting income, even though the bank missed its previous targets in tough market conditions.
Chief Executive Bill Winters now aims to achieve a return on tangible equity (RoTE) of at least 10 percent by 2021 despite only reaching 5.1 percent last year, short of the 8 percent by 2018 goal he set himself three years ago.
StanChart, which makes most of its revenue in Asia, has seen its fortunes slump as restructuring under Winters repaired a balance sheet hit by excessive lending in the previous decade, but left the bank struggling to lift profit.
The 150-year-old group's latest plans coincide with a risk of a slowdown in its core emerging markets due to the China-U.S. trade war as well as economic uncertainties in China and Britain, two of its main markets.
Winters on Tuesday said selling low-returning business such as ship leasing and private equity, and growing income in markets such as India and Korea, would help StanChart hit the new goals despite tougher global economic conditions.
"We've transformed the bank over the last three years and we're going to transform it again," Winters said after the bank published full-year results.
StanChart shares fell 1.2 percent in London following the results, as analysts were disappointed by the bank's full-year profit of $2.5 billion.
RESTRUCTURING
The bank also said its 45 percent stake in Indonesia's PT Bank Permata Tbk, valued at around $835 million, was "no longer core", indicating a potential move towards a sale. StanChart did not elaborate on divestment plans.
Top investors in the bank signalled a willingness to back Winters' plan to tweak rather than completely overhaul StanChart's strategy, despite the failure to hit previous goals.
"Never a quick fix," said Hugh Young, managing director for Asia Pacific at Aberdeen Standard Investments, StanChart's third largest shareholder.
"The combination of cost containment , tidying (Permata) and revenue growth could (and hopefully will) get them back to that double digit RoTE," he said.
StanChart said it aimed to improve returns in India, South Korea, the United Arab Emirates and Indonesia, four large markets that have been a drag on its financials, accounting for 21 percent of costs but just 13 percent of profit.
Winters ruled out selling any of those four businesses, saying the bank would try to win more affluent customers and partner with financial technology firms to increase market share.
StanChart shares have fallen 40 percent since Winters, a former JPMorgan Chase & Co (NYSE:JPM) banker, took over in June 2015. Total returns to shareholders have fallen 35 percent.
Winters was paid 5.95 million pounds ($7.82 million) in 2018, up 27 percent from the previous year as long-term incentives vested for the first time since he joined the bank.
GRAPHIC: Standard Chartered under Winters - https://tmsnrt.rs/2Vl8B1k
Last year, the bank's London shares dropped 22 percent compared with a 15.6 percent fall for rival HSBC Holdings (LON:HSBA).
Winters, in addition to cutting risky lending, has also worked to improve senior bankers' accountability and exit some businesses.
COST TARGETS
To stimulate growth, StanChart has invested in retail banking and wealth management technology platforms in the last couple of years, which increased costs but has yet to yield significant return.
Chief Financial Officer Andy Halford told staff in October the bank had made "virtually no progress" in meeting cost targets and urged managers to consider cutting jobs, paring back travel expenses and freezing recruitment.
The bank's costs rose 2 percent in 2018 to $10.1 billion. But it said continued cost discipline would enable sustained investments, as well as the potential doubling of full-year dividend by 2021 from 15 cents per share last year.
The bank reported a 5.5 percent rise in 2018 pre-tax profit to $2.55 billion, hit by $900 million in provisions to cover any impact from regulatory investigations in the United States and Britain.
StanChart last week said the provision related to the potential resolution of U.S. investigations into alleged sanctions violations and foreign exchange trades.
($1 = 0.7609 pounds)