Ratings matter – Standard Chartered shares lose 7% after Fitch downgrade
By Stephen Morris and Alfred Liu
(Bloomberg) — Standard Chartered Plc shares slumped in Hong Kong after Fitch Ratings downgraded the bank, citing "unfavourable profitability and asset quality trends."
The London-based lender this week unveiled plans to tap investors for $5.1 billion, eliminate thousands of jobs and cut risky assets across Asia.
The bank's shares fell as much as 7.1 percent Friday in Hong Kong. They were down 5 percent as of 10:06 a.m. local time, extending this year's decline to 35 percent. The benchmark Hang Seng Index slipped 0.9 percent.
While Chief Executive Officer Bill Winters's measures to restructure the lender and boost capital address some concerns, implementing the plan could be challenging because of credit risks and high management and staff turnover, Fitch said in a statement. The ratings firm on Thursday cut the lender's credit rating one grade to A+ from AA-, with a negative outlook.
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Winters, who took over in June, on Tuesday unveiled 15,000 job losses to help save $2.9 billion by 2018, with the bank scrapping the second-half dividend. Standard Chartered will also restructure or exit $100 billion of assets and reduce its riskiest lending in Asia after loan impairments surged. The bank that day reported an unexpected third-quarter loss of $139 million, compared with a profit of $1.5 billion a year earlier.
Bad Loans
The bank's impaired-loan ratios remain above its peers' and appear to have become more volatile as a result of concentrated sector and country exposures, Fitch said. "Standard Chartered remains vulnerable to volatility from a difficult operating and regulatory environment."
The bank's shares fell 6.3 percent in London on Thursday.
Standard Chartered's "ratings may be downgraded if the bank fails to strengthen earnings and reduce risks or if loan quality deterioration accelerated undermining its capital strength," Fitch said. "Outsized fines or material business restrictions from litigation could also lead to a downgrade."