Asian banking giant Standard Chartered (LSE: STAN) is topping the FTSE 100 leaderboard today, after several City analysts recommended that their clients buy the bank’s shares.
These buy recommendations were issued as a result of the bank’s recent management changes that are currently under way. Specifically, analysts believe that when ex-JPMorgan banker Bill Winters replaces Standard’s current CEO, Peter Sands, the bank’s fortunes will change dramatically.
Against change
Peter Sands has long been against performing any kind of radical restructuring at Standard, although the bank has been in need of a drastic overhaul for some time.
What’s more, analysts have recently started to speculate that Standard is trying to cover up the value of non-performing loans on its balance sheet. This kind of window dressing looks good at first glance, but over the long term it could lead to hefty writedowns.
Analysts believe that under a new management, Standard will review its loan book and balance sheet, which could lead to a further $4.7bn in loan loss provisions. However, analysts argue that this kind of honesty has always worked out well for European banks. It allows banks to draw a line under past mistakes and concentrate on running the business for today’s market.
Additionally, analysts believe that as the new CEO takes his place at Standard, he will conduct a detailed review of the bank’s businesses. It’s believed that this review will lead to the closure of any underperforming divisions as well as making growth a priority.
Ahead of the crowd
With a new management team set to drive change at Standard, it makes sense to get in now, ahead of the crowd. And while today’s gains have made Standard’s valuation less appealing than it was earlier this week, the bank’s shares are still trading near historic lows.
For example, at present Standard is trading at price to tangible book value of one, a 50% discount to its peer group. Further, while analysts have slashed their earnings estimates for the bank recently, Standard is still trading at a forward P/E of 9.7. Based on estimates for 2016 the bank is trading at a 2016 P/E of 8.5.
Be prepared for volatility
But despite today’s upbeat statements from analysts, Standard’s future is far from certain. There’s still a high chance that the bank will have to conduct a rights issue to bolster its capital ratio. Standard may also need more than just a new management team in order to return to growth.
