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Categorized | Banks

StanChart should freeze out buyout boys

Posted on September 28, 2016

Revenues at Standard Chartered will remain under pressure©Reuters

Indonesia is a “footprint market” for Standard Chartered. At present the footprint is the grubby kind, miring a reputation new broom Bill Winters hopes to sweep clean. The US Department of Justice is investigating allegations that an Indonesian power station builder owned by the bank bribed government officials.

StanChart had already come unstuck in this large, corrupt Asian country by lending to colourful local business folk. The probe into Maxpower group bespeaks a further layer of risk seeking under Peter Sands, Mr Winters’ predecessor. StanChart spent its own cash on a private equity investment in a company active in an industry where backhanders are commonplace.

    Mr Winters cannot pretend this is an arm’s length investment. According to Maxpower’s website, three directors are StanChart executives and chief executive Greg Karpinski worked there until 2015.

    The bank first bought a stake in Maxpower in 2012, the same year it copped a $667m fine and a deferred prosecution agreement from the DoJ for sanctions busting. In theory, the department can revoke a DPA if further wrongdoing emerges. In practice, this would be surprising, given that StanChart reported the Maxpower allegations itself. Barry Vitou of law firm Pinsents says that while it is hard to judge probabilities, “the DoJ does not expect businesses to boil the ocean to comply with a DPA.” If there is a fine, it is unlikely to be more than $50m adds Bernstein analyst Chirantan Barua.

    However, the Maxpower story looks set to reduce by one the number of skeletons Mr Winters can afford to have clatter out of the closet. There is a danger that “monitors” — snoops planted within StanChart by the US authorities — will become the long-term companions of the ex-JPMorgan man.

    Charismatic and understated, Mr Winters has rallied confidence in StanChart’s business model as a bank focused on Asian trade. The lossmaking principal finance business that bought into Maxpower should not figure in that future. Private equity investment conflicts with a bank’s duty to serve its clients. Mr Winters should close the unit if he cannot sell it.

    Hard man, hard talk

    There is something of Martin Johnson about John Martin, new chief executive of FTSE 100 plumbers merchant Wolseley. The England rugby captain was the immovable object in collision with which opponents often discovered they were no longer irresistible forces. Mr Martin made his own bid for enforcer status on Tuesday, announcing 800 UK job cuts and beadily eyeing a webcam with the words: “I will not be tolerant of underperformance for long.”

    Mr Martin, fronting his first full-year results, is the internal successor to a feted boss. He needs to make his mark fast or risk caretaker status. His troubleshooting predecessor
    Ian Meakins returned Wolseley to profits growth and quadrupled the share price.

    Trading profits, a version of operating profits, fell £16m to £74m at the UK division. Wolseley will close 80 branches at a cash cost of £70m for recurring savings of £25m-£30m. The high-flying shares dipped partly because group trading profits were £917m, below some estimates. They would have been £46m worse without the translational benefit of lower sterling, and thus only £14m better than last time.

    US business Ferguson generates four-fifths of Wolseley’s trading profits, a contribution it increased 6 per cent, despite price deflation. Mr Martin enthused “we are Ferguson” — suggesting a certain ignorance of domestic politics in the US, where the phrase has fraught connotations

    That aside, he has made an assured start as Wolseley team captain with a promise of data-based rigour in capital allocation. The City’s own chip shufflers will note that the shares remain expensive at 15 times earnings, given the likelihood US construction growth will moderate as rates rise.

    Key appointments

    Corporate Britain’s best-kept secret is that finance directors win their jobs by playing musical chairs. Every few weeks, number wranglers with itchy feet foregather and caper about to the strains of Here we go round the Mulberry Bush, or, if they’re feeling particularly daring, a number by grime artiste Skepta.

    The result of the latest dance-off is that (deep breath): DMGT’s Stephen Daintith replaces David Smith at Rolls-Royce, who replaces David Mellors at QinetiQ, who replaces Simon Nicholls at Cobham.

    Mr Nicholls would sadly appear to have sat down on the floor with a bump as his next chair was whipped away. Wolseley shareholders rebelled against his appointment there.

    Headhunters insist finance directors come in different forms suiting them to different tasks, like golf clubs. But the impression that these well-paid folk are interchangeable cogs in the corporate machine is becoming hard to shake.