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StanChart pulls plug on CBs, equity derivatives

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Standard Chartered is to close its equity derivatives and convertible bonds businesses in yet another move to bolster its performance by withdrawing from non-core operations. But its timing has surprised some market watchers, who expect a turnaround in equity-linked activity. John Loh reports.

It was only in January that Standard Chartered first took a knife to its global equities division, closing down its institutional cash equities, equity research and equity capital markets operations. As part of the closure, 200 jobs were cut across seven of the firm’s 70 markets, with the majority of the redundancies in Asia.

At that stage however, the bank said it was keeping its retail equities, CB and equity derivatives operations intact. But fast forward nine months and it is now winding down the latter two businesses with effect from October 26.

“The bank is taking action to reposition itself for growth and driving a step change in performance,” it said in a statement. “This move aligns with our priority to kick-start performance by focusing on superior execution for our clients, making strategic investments, innovation in our product and process design, and divestments from non-core businesses.”

The move to cull the two businesses follows a thorough review of their viability against the bank's objectives and a priority to use capital more efficiently, it added.

The convertible bonds business was mainly run out of Hong Kong. One CB banker based in the city said Standard Chartered's exit from the equity-linked business would change the competitive landscape, especially since it was one of the 10 or so active banks for CB issuance in the region.

The bank has received league table credits for eight equity-linked deals year-to-date worth $203m in Asia ex-Japan ex-onshore China. This gave it the eighth spot on the bookrunner league table, up from 11 during the same period last year, according to Dealogic.

“They’ve done quite a few deals this year, which is impressive considering Asia ex-Japan has barely had any new equity-linked issuance,” said the banker. So far this year, a total of 104 deals have been executed in the region worth a total of $4.95bn, according to Dealogic.

Life for equity-link

The timing of Standard Chartered’s exit was odd, said the banker, considering the market is poised for a turnaround following the National Development and Reform Commission’s recent rule change.

The Chinese government agency overhauled its guidelines for foreign debt sales by Chinese issuers in September, which is expected to pave the way for H-share issuers to tap the CB market. 

State-owned CRRC Corp has already obtained approval from its board for an offshore CB worth as much as $1bn, while China Railway Construction Corp is deciding between a straight bond and offshore CB offering.

But even if activity picks up, Standard Chartered’s equity-linked bankers will probably face an uphill task when it comes to finding new jobs.

“There are unlikely to be many open positions,” the banker said. “There’s never a lot at one go for CB jobs anyway, and given the amount of issuance we’ve seen this year, banks won’t really be hiring.”

A Standard Chartered spokesperson declined to comment on the number of staff in its convertible bonds business, but said that the firm had announced in July that there would be further personnel changes as it simplifies its organisational structure.

“We have already acted to reduce management layers, and a result will have up to 25% fewer senior staff,” said the spokesperson.  

A headhunter in Singapore said that the bank was planning cuts in bands three and four, which is the managing director and executive director level, for positions across the bank. These are likely to take place at the end of the year. The CB business probably got the axe as it was not as profitable as the M&A and advisory divisions, putting more strain on the balance sheet while delivering a lower return on equity, the headhunter added.

Capital markets rejig

Despite the cuts, Standard Chartered said it would continue to run its securities trading operation and would also fulfill its responsibilities to holders of its Hong Kong-listed warrants, callable bull/bear contracts (CBBCs) and equity-linked instruments. Liquidity will be provided to holders of these instruments until they expire, and a small transition team will see through these matters.

At the time of its departure from ECM in January many executives left Standard Chartered, while the firm relocated A Rajagopal from Hong Kong to India in March to become head of south Asia capital markets. Until then, he was global head of ECM. The cuts were expected to lead to cost savings of around $100m in 2016.

Rajagopal took charge of syndicated loans and bonds, with his remit including expanding the bank’s equity-linked franchise. But with the closure of the CB business, it is unknown how Rajagopal’s role will change. 

The shuttering of the equity-linked and derivatives units is another step for Standard Chartered in its overhaul of global operations, including rejigging its capital markets team. Earlier in October, it said it was splitting its debt capital markets and loan syndications units, with the latter to sit under corporate finance from January 2016.