SCB Strategic Review 2015 PDF
SCB Strategic Review 2015 PDF
SCB Strategic Review 2015 PDF
3 November 2015
0
Disclaimer
The securities referred to in this presentation and which are to be offered in the rights issue also referred to herein (the “Rights Issue”) will not be registered under the U.S. Securities Act of 1933, as amended (“U.S.
Securities Act”), or any state securities laws, and may not be offered or sold in the United States unless they are registered or in reliance on an exemption from, or in transactions not subject to, the registration
requirements of the U.S. Securities Act. There is no intention to register any part of any proposed offering of securities in the United States.
This presentation is for information purposes only and relates only to an update on the Group’s strategic plans and a summary of its historic financial performance. This presentation does not constitute or form part of any
offer or invitation to sell, or an initiation to induce an offer or issue, or any solicitation of any offer to acquire securities or to take up entitlements to securities in any jurisdiction. This presentation cannot be relied upon for
any investment contract or decision and any decision to participate in a rights issue referred to in this presentation must be strictly on the basis of information contained a prospectus relating to the prospectus to be
published in connection with the Rights Issue (the “Prospectus”).
This presentation contains or incorporates by reference “forward-looking statements” which are based on the beliefs, expectations and assumptions of Standard Chartered, the Directors, and other members of senior
management about the Group’s business, strategy, plans or future financial operating performance and the Rights Issue described in this document. All statements other than statements of historical fact included in this
document may be forward-looking statements. Generally, words such as ”will”, “may”, “should”, “could”, “estimates”, “continue”, “believes”, “expects”, “aims”, “targets”, “projects”, “intends”, “anticipates”, “plans”, “prepares”,
“seeks” or, in each case their negative or other variations or similar or comparable expressions identify forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. They are not
guarantees of future performance and actual results could differ materially from those contained in the forward-looking statement. These forward-looking statements reflect the current views, beliefs of the Directors and
other members of senior management, as well as assumptions made by them and information currently available to them. Estimates and assumptions involve known and unknown risks, uncertainties and other factors,
many of which are outside the control of the Group and are difficult to predict. Such risks, factors and uncertainties may cause actual results to differ materially from any future results or developments expressed or implied
from the forward-looking statements. Although the Directors and other members of senior management believe that these beliefs and assumptions are reasonable, by their nature, forward-looking statements involve risks
and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future or are beyond the Group’s control. The Directors and other members of senior management believe
that these risks and uncertainties include but are not limited to: changes in the credit quality and the recoverability of loans and amounts due from counterparties; changes in the Group’s financial models incorporating
assumptions, judgments and estimates which may change over time; risks relating to capital, capital management and liquidity; risks associated with the implementation of Basel III and uncertainty over the timing and
scope of regulatory changes in the various jurisdictions in which the Group operates; risks arising out of legal, compliance and regulatory matters, investigations and proceedings; operational risks inherent in the Group’s
business; risks arising out of the Group’s holding company structure; risks associated with the recruitment, retention and development of senior management and other skilled personnel; risks associated with business
expansion and engaging in acquisitions and/or selective disposals; risks associated with the execution of our detailed strategy review including as to timing and as to realization of the estimated benefits of that strategy
review; changes to the Group’s RWA, cost reduction and return on equity targets; reputational risk; pension risk; global macroeconomic risks; risks arising out of the dispersion of the Group’s operations, the locations of its
businesses and the legal, political and economic environment in such jurisdictions; competition; risks associated with the UK Banking Act 2009 and other similar legislation or regulations; changes in the credit ratings or
outlook for the Group; market, interest rate, commodity price, equity price and other market risks; foreign exchange risk; financial market volatility; systemic risk in the banking industry and among other financial institutions
or corporate borrowers; cross-border country risk; risks arising from operating in markets with less developed judicial and dispute resolution systems; risks arising out of hostilities, terrorist attacks, social unrest or natural
disasters; risk of the price of the New Ordinary Shares falling below the Issue Price; risk of trading markets in the Nil Paid Rights not developing; failure to generate sufficient level of profits and cash flows to pay future
dividends; risk of dilution for shareholders not acquiring New Ordinary Shares; and risk of dilution resulting from any future issue of Ordinary Shares. These factors should not be construed as exhaustive and should be
read with the other cautionary statements in this document and the Prospectus, when published. Moreover, new risk factors may emerge from time to time and it is not possible to predict all such risks or assess their
impact for disclosure in this document. Any forward-looking statement contained in this presentation is based on past or current trends and/or activities of Standard Chartered should not be taken as a representation that
such trends or activities will continue in the future. No statement in this presentation is intended to be a profit forecast or to imply that the earnings of the Company for the current year or future years will necessarily match
or exceed the historical or published earnings of the Company. Each forward looking statement speaks only as of the date of the particular statement and/or the Group. Except as required by the FCA, the Listing Rules,
the Disclosure and Transparency Rules, the Prospectus Rules, the London Stock Exchange or otherwise by law, the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions
to any forward-looking statements contained herein, whether as a result of any change in events, conditions or circumstances or otherwise on which any such statement is based. Investors should consult the disclosures
we have made in our annual report and other announcements relating to risks the Group faces and which are available on our website. In addition, the Prospectus will contain detailed risk factors to be considered by
prospective investors in the Rights Issue.
This presentation is directed only at persons who: (i) are investment professionals as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) (the "Order");
or (ii) fall within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc") of the Order (all such persons being "relevant persons"). It is not intended to be distributed or passed on, directly or
indirectly, to any other class of persons and may not be relied upon by such persons and is therefore not intended for private individuals. This presentation is only for relevant persons and must not be acted on, reviewed
or relied on by persons who are not relevant persons.
1
Bill Winters
Group Chief Executive
2
What we will cover today
Welcome Bill Winters
Strategic plan Bill Winters – Group Chief Executive Officer
Plans to establish a strong, lean, focused and profitable bank
A clear need for change
Powerful underlying trends and opportunities
Guiding principles in developing the strategy
Outline of strategic plan and programme of actions
Summary
Strategic plan – Financial summary Andy Halford – Group Chief Financial Officer
Actions to reverse recent performance trajectory
Our financial priorities and key strategic actions
Risk Weighted Assets management
Cost reduction and investment programme
Tightening risk profile
Generating improved Returns on Equity
Metrics to measure our progress
Summary Bill Winters – Group Chief Executive Officer
Q&A Bill Winters and Andy Halford
3
We will establish a strong, lean, focused, differentiated and
profitable bank
• GB£3.3bn Rights Issue and no final 2015 dividend to strengthen capital position and
accelerate execution
• Businesses and assets representing over US$100bn, approximately one third, of Group Risk
Weighted Assets to be restructured
• Gross cost reduction target increased to US$2.9bn to improve efficiency and fund investment
over 4 years
• Approximately US$3bn restructuring charges expected by the end of 2016 from potential losses on
liquidation of non strategic assets, redundancy costs and goodwill write downs
• A step-up in cash investment by more than US$1bn over 3 years to reposition our Retail and Private
Banking businesses, our Africa franchise, our renminbi services, and to enhance controls
• Fundamental change in mix towards more profitable and less capital-intensive businesses
• Restructured the Group to focus on local execution and improved accountability
• After these actions, CET1 ratio will be towards the top end of our new target range of 12-13%
Will lead to a strongly capitalised bank poised for growth in our dynamic and growing
markets, with the goal to deliver returns by business of 10%
4
There is clear need for change to address declining performance
• Economic uncertainty in many markets Profit before tax (US$bn) and RoE (%)
8 16
• Heightened near term risks
7 14
• Unacceptable performance trajectory
6 12
• Performance lags local and global peers
5 10
• Underinvested systems 4 8
• Competition intensifying 2 4
1 2
0 0
2010 2011 2012 2013 2014 Q315
YTD
Profit before tax Normalised ROE
(LHS) (RHS)
5
We operate in many of the highest growth markets in the world,
despite current adverse emerging markets sentiment
UAE Taiwan
9.7%
5.7%
3.5% 4.1%
7.4% 6.0%
5.4% 5.8% 5.0% 5.4%
2.2% 3.1%
6
Powerful underlying trends offer exciting long-term opportunities
Our strong brand, Wealth platform and presence in Asia, Africa and the Middle East will allow
us to benefit from these underlying trends by giving outstanding service to clients
7
Guiding principles to become strong and profitable
8
Comprehensive programme of actions in pursuit of
three core objectives
3
• Invest and innovate in Private Banking and Wealth Management to capture opportunities
Invest and • Build on a strong foundation and invest to grow safely in Africa
innovate • Leverage opening of China; capture opportunities from renminbi internationalisation
• Roll out enhanced Retail digital capabilities across our footprint
9
Focused on execution and delivering on targets
• Commenced delivery of financial targets • Announced sale or closure of over 20 non-
• Strengthened CET 1 strategic businesses since 2014
• On track to deliver existing cost efficiency targets • UAE SME and correspondent banking closures
• On track to achieve existing low-returning RWA targets
Actions on
peripheral
Action on business
Action on
financial efficiencies
targets Actions on and
risk and capabilities
compliance
10
Rights Issue expected to strengthen the balance
1 sheet materially
• Raising net proceeds of GB£3.3bn or approximately US$5.1bn equivalent1 in ordinary shares by way of
Rights Issue
• Issue price of 465 pence per share with 2 new shares for every 7 existing shares
• The Board will not be proposing a final dividend for the current financial year
• The Directors and Management Team are fully supportive of the Rights Issue and those that are entitled to take up
their rights intend to participate
• Proceeds of the Rights Issue expected to increase the CET 1 ratio by approximately 160bps as at 30 June 2015
• The Prudential Regulation Authority is familiar with the details of the Group’s current capital position and proposed
plans, and has raised no objections in respect of them
• The Bank of England will publish the results of its 2015 stress tests on 1 December, including the results for the
Group, the outcome of which is unknown to the Company and not yet finalised
11
Business strategy aligned with tightened risk tolerance to
1 create a more diverse and resilient balance sheet
1 4
Strategy set to risk tolerance – clients and Retail client focus on high value segments
products less capital intensive
2 5
Active portfolio management reduces tail
Reduce concentrations
risks
3 6
Operational Risk Framework cleared with
Focus on returns critical to risk discipline
focus on conduct
The future business is governed by more granular risk tolerance limits with
Board level oversight
12
Businesses and assets comprising approximately one third of
1 Group RWA to be restructured
13
Simplified organisation structure to focus more on
1 geographic execution
14
1 Deliver our conduct and financial crime risk programmes
15
Comprehensive programme of actions in pursuit of
2 three core objectives
3
• Invest and innovate in Private Banking and Wealth Management to capture opportunities
Invest and • Build on a strong foundation and invest to grow safely in Africa
innovate • Leverage opening of China; capture opportunities from renminbi internationalisation
• Roll out leading Retail digital capabilities across our footprint
16
Restructure Corporate and Institutional Banking for higher
2 returns
17
2 Accelerate Retail transformation
Core cities
already
Turn around Korea performance, but keep generate
options open ~10%
RoE
18
2 Fundamentally overhaul Commercial Banking
Core advantages
• Long history of banking growing and internationalising companies in our markets
• Strong and integrated product platform (TB and FM)
• Distinctive bank-wide connections, across borders and supply chains
Strategic priorities
Re-cost and re-tool
• New segment including transfer of Local Corporates from Corporate and Institutional Banking
• Take out ~US$10bn low returning RWA
• Right-size the expense base
• Continue to enhance controls and ensure continued improvements in financial crime compliance
19
We have a clear and deliverable strategy for our regions
2 building on our current strategic positioning
Greater China & North Asia ASEAN & South Asia Africa & Middle East Europe & Americas
“Invest to grow Hong Kong; restructure
“Drive Retail Banking to turn around “Invest to grow in Africa; refocus “Maintain our origination centres to
Retail and Commercial in China and
performance in key markets” MENA, build in Pakistan” support the network; reshape LatAm”
Korea ”
RB1 PvB2 CB3 CIB RB PvB CB CIB RB PvB CB CIB RB PvB CB CIB
China Singapore Nigeria UK
Hong Kong Malaysia Kenya Other Europe
Taiwan Indonesia Ghana
Korea Thailand Zambia United States
Japan Vietnam South Africa LatAm
Botswana
India
Bangladesh UAE
Saudi Arabia
Bahrain
Pakistan
20
2 Assertively manage costs to create investment capacity
3
• Invest and innovate in Private Banking and Wealth Management to capture opportunities
Invest and • Build on a strong foundation and invest to grow safely in Africa
innovate • Leverage opening of China; capture opportunities from renminbi internationalisation
• Roll out enhanced Retail digital capabilities across our footprint
22
We are investing in the businesses generating the Group’s
3 incremental returns above our cost of capital, driving value
23
Invest and innovate in Private Banking and Wealth
3 Management to capture the opportunities in our footprint
Core advantages
• Best in class, open architecture wealth distribution platform
• Strong onshore presence in rapidly growing Wealth markets
• Advantaged origination from Retail, Commercial and Corporate clients
Strategic priorities
Distinctive and digital distribution
~US$250m cash investment 2016-2018 to upgrade capabilities and build a single global platform:
• Improve sales productivity
• Improve efficiency with increased automation of back-office activities
• Lower operational risk
24
3 Build on a strong foundation and invest to grow safely in Africa
Zimbabwe
• ~US$250m cash investment 2016-2018
South
Africa
25
Leverage opening of China; capture opportunities from
3 renminbi internationalisation
Core advantages
ONE BELT
Recognised thought leader
Strategic priorities
New Silk Road Economic Belt Countries (One Belt) 21st Century Maritime Silk Road Countries (One Road)
Capture ‘mainland wealth’ flows
26
3 Roll out enhanced retail digital capabilities across our footprint
10% 30%
Transaction Analytics
Real-time Processing Data
Online transaction Systems Warehouse Branch Transactions
Channels capability
80M 40M
Majority of the
~US$500m cash
investment into Staff productivity
Retail 2016 – 2018
25%
27
We will establish a strong, lean, focused, differentiated and
profitable bank
• GB£3.3bn Rights Issue and no final 2015 dividend to strengthen capital position and
accelerate execution
• Businesses and assets representing over US$100bn, approximately one third, of Group Risk
Weighted Assets to be restructured
• Gross cost reduction target increased to US$2.9bn to improve efficiency and fund investment
over 4 years
• Approximately US$3bn restructuring charges expected by the end of 2016 from potential losses on
liquidation of non strategic assets, redundancy costs and goodwill write downs
• A step-up in cash investment by more than US$1bn over 3 years to reposition our Retail and Private
Banking businesses, our Africa franchise, our renminbi services, and to enhance controls
• Fundamental change in mix towards more profitable and less capital-intensive businesses
• Restructured the Group to focus on local execution and improved accountability
• After these actions, CET1 ratio will be towards the top end of our new target range of 12-13%
Will lead to a strongly capitalised bank poised for growth in our dynamic and growing
markets, with the goal to deliver returns by business of 10%
28
Andy Halford
Group Chief Financial Officer
29
Q3 performance further highlights the need for change
30
RoE in recent years has been driven down by largely cyclical business factors and
structural regulatory factors
1
(5.3) Cost of liquidity impact of holding higher ‘Liquid
Income ROA -5.0 -0.4
Asset Buffer’
Normalised RoE drivers
1) Return on Assets; 2) Q3 15 YTD annualised and adjusted to include an estimate of the UK bank levy
31
Our priority is to drive returns to 10% with CET 1 of 12-13%
32
Rights Issue expected to strengthen the
1 balance sheet materially
33
Material RWA reallocation creates capacity for investment into
2 higher returning businesses
Total 2015 Group Risk Weighted Assets US$bn Creates capacity to invest RWA into
our higher returning businesses
Liquidate assets beyond RWA managed
risk tolerance 20 up, out, or
10 • ~US$10bn in Retail and Private Banking
Restructure Korea Retail 20 restructured
by 2018
• ~US$5bn Commercial Banking
Reposition Indonesia • ~US$10bn Corporate and Institutional
50
Banking
Improve returns on low • Plus the portion of ~US$50bn low
returning relationships 220 5 returning relationships that we can
Exits of peripheral manage up rather than out
businesses
Remaining RWA
~15% ~15%
US$1bn US$6bn
Net change in ~(25%)
Credit RWA (US$40bn) ~(10%)
2015-181 (US$3bn)
34
Assertively manage the cost base to create investment capacity
3 by stepping up cost reductions to US$2.9bn over 4 years
US$2.9bn
(2015-2018)
On track
US$1.8bn US$2.3bn to deliver
(2015-2017) (2016-2018) US$0.6bn
(2015)
Retail
• Implement new straight-through client on-boarding process and system • Roll-out Retail workbench
• Migrate customers from branches to online • Drive end to end redesign and
• Rationalise branches digitisation
Commercial
• Rationalise client coverage roles across segments and regions • Consolidate Local Corporates into
• Improve end-to-end efficiency and effectiveness of key processes Commercial
PB/WM
• Automate processes • Adapt Retail workbench for private
• Improve tools for relationship managers bank
Group-
wide • Outsource real estate management
initiatives • Optimise real estate, via increasing density and agile working
activities
• Implement new strategic sourcing approach
• Optimise desk-to-head ratio
Functions • Simplify organisation / increase spans of management control • Drive end to end redesign and
• Standardise, eliminate duplication, introduce self-serve tools digitisation
36
We will invest in excess of US$3bn (cash basis) over three
4 years, to deliver a cost, control and profitability transformation
Regulatory
>US$0.5bn
• Regulatory compliance
investment (e.g. BCBS, IFRS 9)
• Invest to ensure our business is
supported by a leading compliance
programme
37
Planned cost reduction from 2015 to 2018 including
3/4
significant investment spend
~US$0.7bn
38
5 Taking significant action to improve our risk profile
10
5 60%
0
H2 13 H1 14 H2 14 H1 15 Q3 15 H2 13 H1 14 H2 14 H1 15 Q3 15 Future state
Top 20 Corporates / Tier 1 Capital
Increased CIB and CB cover ratio
100%
56%
• Continued action to reduce corporate
56%
50% 56% 56% concentrations
• Strategy to reduce the high risk CCPL2 business is
48% 48% 47% 52% 58% driving lower Retail loan impairment
• Coverage has remained at above 100% including
H2 13 H1 14 H2 14 H1 15 Q3 15 recoveries and collateral
Cover ratio without collateral & recovery 5 yrs rolling average recovery rate
39
5 Continue to reduce our Commodities exposures actively
1) CIB and Commercial exposures are presented on a Country of Credit Responsibility (“CCR”) and on a net exposure basis. Net exposures comprise of loans and advances to banks and customers,
investment securities, derivative exposures after master netting agreements, other assets, contingent liabilities, documentary credits and cash and balances at central banks
40
Commodity exposures are a significant proportion of the CIB
5 and Commercial loan impairment and Non Performing Loans
41
Actively managing our China Corporate and Institutional and
5 Commercial clients exposures
H2 13 H1 14 H2 14 H1 15 Q3 15
FI exposure of US$32.9bn (55% of China CIB/CB) Continued to actively manage commodity portfolio
• Reduced exposure by 26% since H1 14 • Total exposures down 41% YTD to US$5.5bn
• 99% is investment grade • Producer exposure down 54% YTD to US$1.9bn
• 95% is < 1 year in tenor • Trader exposure down 36% YTD to US$3.6bn
• 79% to Top 5 Chinese banks
1) CIB and Commercial exposures are presented on a Country of Credit Responsibility (“CCR”) and on a net exposure basis. Net exposures comprise of loans and advances to banks and customers,
investment securities, derivative exposures after master netting agreements, other assets, contingent liabilities, documentary credits and cash and balances at central banks
42
Continuing to reduce selected more vulnerable exposures
5 in India
H2 13 H1 14 H2 14 H1 15 Q3 15
1) CIB and Commercial exposures are presented on a Country of Credit Responsibility (“CCR”) and on a net exposure basis. Net exposures comprise of loans and advances to banks and customers,
investment securities, derivative exposures after master netting agreements, other assets, contingent liabilities, documentary credits and cash and balances at central banks
43
Re-building Return on Equity – Key assumptions to 2020
• Sentiment to emerging markets improves gradually over time Singapore 2.1 2.5 2.8
India 7.3 7.3 7.5
• No major new regulatory changes beyond those already
known (e.g. estimate of Basel IV included)
• Asset liquidation, de-risking and cyclical improvements return impairment costs to 2013 levels
BUSINESS MIX • Reduced UK Bank Levy costs over time (significant benefit only after 2021 i.e. after projected period)
• Korea restructuring and Indonesia repositioning
44
Plan drives RoE to ~8% by 2018, ~10% in 2020 and
CET1 of 12-13%
Income momentum,
reduced investment
drag and improved
macro environment
Income Expenses ~4%
~2% ~2%
~10%
Macro
Strategic
investment
Underlying ~8%
~3%
45
Metrics to measure progress
• Risk tolerance discipline: Reduce / exit exposures to within the refreshed Group risk tolerance by 2017
Secure the
• Liquidate and exit identified non strategic assets: c.US$25bn RWA to nil by end 2018
Foundation
• Cost Discipline: 2018 total costs below 2015
Get lean and • Corporate and Institutional Banking / Commercial Banking: c.US$50bn RWA optimisation by 2018
focused • Retail: Target cost income ratio of c.55% by 2020
• Private Banking and Wealth Mgt: US$25bn Asset under Management growth by 2018
• Retail Banking: Over 40 per cent of income from Priority Clients by 2018
Invest and innovate • Africa: Market share gains across the Africa region
• Renminbi: Maintain leadership position in renminbi cross border payments, offshore renminbi bond
issuance and FX solutions
46
Bill Winters
Group Chief Executive
47
Q&A
48