Standard Chartered’s board is divided over whether a rights issue is needed to strengthen the lender’s balance sheet after a tough year’s trading in its emerging markets.
The need for a cash call has been discussed privately between directors rather than at a more formal board meeting. Sources close to the bank told The Independent that “private and deep questions are being asked” of the most senior directors, with several believing that raising new capital is the best option to get the bank on an even keel again.
Those who support a rights issue include Sir John Peace, Standard’s chairman. However, Peter Sands, the chief executive, who was with David Cameron’s trade mission to China when the trading statement was announced, is said to be opposed. The two are also said to be in disagreement over succession plans, with Mr Sands hoping to step up to become chairman when Sir John retires.
News of the rift between Standard’s directors comes after the bank, which earns 90 per cent of its income in emerging markets, warned on Wednesday of its first fall in operating profits for a decade. Investors were spooked by the warning, and sent the shares plummeting by 7 per cent, from £14.35 to £13.32. Yesterday, the shares had recovered slightly to £13.265p.
Last night, a spokesman for the bank said it was “extremely comfortable with its capital levels and remains in a strong position”. He added: “Some analysts have speculated about a rights issue after the trading statement but we do not comment on such speculation.” Richard Meddings, the group finance director, also said on Wednesday that the bank was comfortable with its capital ratios. However, the spokesman was not able to comment on whether other board members took a different view.
Standard Chartered has enjoyed 10 consecutive years of growth in revenues and profits. However, the past year or so has been tough. Problems at its South Korean subsidiary caused the bank to expect at least a 10 per cent fall in operating profits in consumer banking, and an operating loss of $200m at the South Korean unit. In August, it took a $1bn write-down at the unit after other lenders in the country were forced to write off personal loans.
Profits in wholesale banking are expected to be flat for the year, with group revenues likely to be little changed from last year’s £11.6bn. A long-standing target of generating double-digit revenue growth every year has been dropped.