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AgendaNovember 1 2018

CIB chief steers Standard Chartered into calmer waters

As measures to manage risk and credit quality pay off, Standard Chartered’s CIB chief is bullish. He is also relaxed about the increasing trade tensions between the US and China, as Stefanie Linhardt discovers.
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Simon Cooper

Simon Cooper

When Simon Cooper joined Standard Chartered as chief executive for the bank’s corporate and institutional banking (CIB) business in 2016, he brought with him a wealth of experience from working in many of the bank’s key markets. He had previously managed the operations of HSBC’s Middle East and north Africa businesses, as well as that in South Korea, and was head of CIB in Singapore before running HSBC’s global commercial banking franchise for three years.

Standard Chartered, a competitor to HSBC in many respects, was then operating in more than 60 countries across the globe, with large franchises in Asia, the Middle East and Africa, positioning it as a true bank for emerging market clients. But the bank’s CIB business was also weighed down by heavy losses on loans to businesses in parts of Asia.

Thanks to his background, Mr Cooper hit the ground running when he took on the role at Standard Chartered. He focused on diversifying and de-risking the bank’s client base and identified three basic drivers to improve returns in the bank’s CIB business: boost revenues, cut costs and lower risk-weighted assets (RWA). He then went about delivering on these drivers.

A shift in quality

Two-and-a-half years after taking over Standard Chartered’s CIB operations, the bank has made “progress but we need to drive our returns higher”, says Mr Cooper. Standard Chartered has a medium-term return on equity (ROE) target of more than 8% for the group and reported 6.7% in the first half of 2018 (3.5% at year-end 2017). For the CIB business, Mr Cooper announced a medium-term target of between 5% and 7% growth. Year on year, ROE has increased from 4.1% to 6.9% in the first half of 2018.

“It is the quality and mix of revenue that is important,” says Mr Cooper. “How do we shift from a predominantly lending, interest-driven revenue stream to one that is more diversified – [meaning] cash, trade finance and foreign exchange – and how do we deliver revenue that is more sustainable from a loan impairment perspective? It is not just looking at the top line but at risk-adjusted revenue."

Year on year, Standard Chartered's underlying income of $3.5bn was 7% higher after the first six months in 2018, primarily driven by a growth in cash management and financial markets income, if partly offset by margin compression in corporate finance and trade finance.

The second element to achieving better returns is cost cutting. “I have taken out a significant amount of cost from the CIB business, which has enabled me to invest in some opportunities to upskill talent but also into technologies we use to drive up our business, such as artificial intelligence [AI],” says Mr Cooper. His target is to keep costs below the rate of inflation in the bank’s markets (which currently stands at about 3%).

One of the important steps along the way is investing – especially in technology – to achieve cost savings at a later stage, while improvements in the client experience should also lead to higher revenues in future. According to Standard Chartered’s first-half results for 2018, the average time to on-board clients in the CIB business has come down to eight days. It was 41 days at the end of 2015. This helps to attract new clients and ultimately improve returns.

Career history: Simon Cooper  

  • 2018 Chief executive, corporate, commercial and institutional banking, Standard Chartered Bank
  • 2016 Chief executive, corporate and institutional banking, Standard Chartered Bank
  • 2013 Group managing director and chief executive, global commercial banking, HSBC
  • 2009 Deputy chairman and chief executive, HSBC Middle East & North Africa
  • 2006 Chief executive, HSBC Korea (also group general manager from 2008)
  • 2004 Head of corporate and investment banking, HSBC Singapore
  • 2001 Deputy chief executive, head of corporate and investment banking, HSBC Thailand
  • 1996 Director, HSBC Investment Bank Singapore
  • 1995 Associate director, international equity origination, HSBC 

Following simple mathematics, returns (profits divided by RWAs) increase if profits rise (revenues minus costs) and RWAs fall. On a group level, RWAs decreased from $303bn (of that, some $168bn was related to the CIB business) at the end of 2015 – before Mr Cooper  joined – to $272bn after the first six months of 2018, or $147bn for the CIB business.

Improved risk management

Since joining Standard Chartered, Mr Cooper has increased the bank’s proportion of investment-grade clients to more than 60% by mainly targeting clients based in member states of the Organisation for Economic Co-operation and Development. He has also set up a credit portfolio management unit to achieve better insight into the risks the bank is running.

This focus on improving credit quality and better risk management is visible in the bank's results; after the first six months of 2018, credit impairments for the group were 50% lower year on year at $293m, driven by a significant reduction in impairments in CIB from $369m in June 2017 to $81m in June 2018. “The big delta has been setting up credit portfolio management, getting greater first-time ownership of risk, and setting up capital allocation forums at regional levels – these are the big triggers for the changes in credit quality so far,” says Mr Cooper.

Standard Chartered has also made investments in AI to add to its risk management capabilities. And while this has so far not been the big driver in credit quality improvements, Mr Cooper believes that going forward AI will also play an important role.

Emerging market clouds?

Standard Chartered’s unique set-up as a bank for emerging markets does bring risks – as the bank learnt before Mr Cooper’s arrival, when some exposures to heavily indebted clients put pressure on the balance sheet. Since then, the number of countries in which the bank operates has been reduced to 60. To improve the bank’s resilience, there has been a distinct diversification of clients, which makes Mr Cooper believe that the CIB business will brush off the recent market volatility in emerging market credits and any impact of further increases in US interest rates on borrowers in the region.

He notes that while rate rises can have a negative credit impact, Standard Chartered’s work on de-risking its balance sheet and shifting towards more investment-grade clients means that the bank is “pretty well insulated” from interest risk from a credit perspective. And as it shifts its focus further onto cash management and liabilities, an increase in rates serves as “a positive kicker to revenue”, he says. He therefore sees US interest rate rises “as a tailwind rather than a headwind, overall” for the CIB business.

And despite the bank’s exposure to Chinese and US clients, Mr Cooper believes the risk of a potential ‘trade war’ between the two countries should not have too bad an impact on its business. “Even if there was a massive bust-up between the US and China, trade would still happen, consumption would still happen,” he says. He adds that some countries’ economies, including Malaysia and Vietnam, could even benefit if they replace China as an exporting partner for the US, which could serve as an additional hedge for Standard Chartered’s exposure to potential trade war risks.

Belt and Road opportunities

Standard Chartered’s geographic set-up also offers unique opportunities thanks to the Chinese government’s Belt and Road Initiative (BRI). “We have a natural role to play in supporting China in its outbound growth ambition,” says Mr Cooper. He adds that Standard Chartered’s local presence among BRI countries, the lender’s industry and technical expertise, and its capabilities to send remittances back to China position the bank perfectly to benefit from China’s BRI investment programme.

“If you were starting from scratch to build a bank that serves the BRI aspiration of China, it would look like Standard Chartered,” says Mr Cooper. This footprint “is going to be absolutely critical” going forward in serving multinational clients who are looking to expand their businesses and grow their revenue lines, he adds.

The bank has already served on several BRI transactions of different natures. These include:

  • as financial adviser to Chinese chemical business ChemChina, which led a consortium in the acquisition of KraussMaffei, a German supplier of machinery and systems;
  • as mandated lead arranger on financing supporting Fosun Industrial to complete its acquisition of Gland Pharma in India; and
  • as regional treasury centre bank for a Chinese state-owned engineering company, offering flexible flow-related solutions across the client’s footprint from China and Hong Kong to Sri Lanka and several African markets to help facilitate the client’s offshore business expansion.

Standard Chartered is the top bookrunner for global offshore renminbi bond issuance, according to a league table compiled by GlobalRMB, with a 33% market share. As the Chinese initiative grows, Standard Chartered expects to benefit further.

Aligned resources

Having directed Standard Chartered’s CIB business into safer waters, Mr Cooper has also been in charge of the bank’s commercial banking business since March 2018. He seeks to keep commercial banking as a distinct client segment in his portfolio but notes there are opportunities to apply some of the lessons from the bank’s past CIB successes, such as improving discipline around capital allocation and increasing the focus on credit risk.

“All of the products that our commercial banking clients could be interested in sit within my remit as well, so I can make sure that we are aligning resources to help our clients achieve their growth ambitions,” he says.

In the first half of 2018, StanChart’s commercial banking business reported an ROE of 3.9%. And while Mr Cooper has not publicly announced any guidance for commercial banking returns, he notes: “You can safely say that 3.9% is not good enough. There is an opportunity to grow this significantly.” 

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