Standard Chartered’s (LSE: STAN) shares have surged by nearly 25% since the beginning of February, as the market has backed the bank’s management overhaul and initial plan to return to growth.
A new management team led by former ex-JPMorgan banker Bill Winters is due to take over next month, and analysts expect him to get to work engineering Standard’s recovery straight away.
A detailed review of the business, asset sales and possible rights issue are all on the cards for the bank following the management shake-up.
What’s more, the recent rally has been fuelled by rumours that Standard could be contemplating a move away from the UK. And in many ways, a possible move away from the UK could drive Standard’s shares even higher if management decides that this is the best choice for the bank.
Move away from the UK
A move away from the UK would be a prudent move for Standard. The bank has no retail operations here in the UK, and the bank conducts the majority of its business within Asia.
But the biggest issue for Standard is the UK’s bank levy, which is proving to be a strong headwind.
In particular, the bank levy is a tax on bank liabilities, which Standard pays on its global balance sheet. It’s estimated that, after the recent levy hike, Standard will be facing an annual tax bill of $550m here in the UK.
A move away from the UK would incur a one-off charge of $2.5bn according to some analysts — but by saving $550m per annum in tax, Standard could see a payback within four-and-a-half years.
Additionally, excluding one-off costs, Standard would see its net income jump 10% without the bank levy taking a disproportionate chunk out of income every year. The bank’s return on tangible equity — a key measure of bank profitability — would rise by at least 1.3% per annum following the move. Standard reported a ROTE of 8% for 2014, so an increase of 1.3% would see the bank’s ROTE rise by 16.3% overall — that’s a noticeable difference.
Of course, these are only estimates and only time will tell if Standard does decide to move its headquarters out of the UK. Unfortunately, the figures do seem to favour a move.
Foolish summary
All in all, Standard’s recent outperformance has been driven by analysts’ optimistic outlook for the bank. However, Standard’s turnaround hasn’t started yet and there are still many hurdles to overcome before the bank returns to health. For this reason, Standard’s rally might run out of steam over the next few weeks.
