2 Reasons To Bale Out Of Standard Chartered PLC


In recent days I have looked at why I believe Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US) is poised to reach for the stars (the original article can be viewed here).

But, of course, the world of investing is never black-and-white business — it take a confluence of views to make a market, and the actual stock price is the only indisputable factor therein. With this in mind I have laid out the key factors that could, in fact, crimp Standard Chartered’s investment appeal.

Rights issue not out of the question

Standard Chartered’s extensive pan-Asian footprint makes it a favourite for those looking to tap the fruits of long-term developing market growth. However, the effect of economic cooling in these regions has weighed heavily on the bank’s performance over the past year, and Standard Chartered has cautioned that further pressure could be on the horizon.

The firm has warned that “some of our markets face difficult political and social transitions that could have a significant impact on business confidence” during 2014, and has stressed concern over possible developments in China, India, Japan and Indonesia specifically. With tighter banking regulations also poised to rattle performance, this has prompted rumours that the company will be forced into yet another fresh rights issue to boost the fragile balance sheet.

Indeed, The Independent reported back in December that the board was seriously dividend over whether to issue a cash call. With group finance director Richard Meddings and former Consumer Banking head Steve Bertamini both stepping down from the board in January, and difficulties in its core regions looking likely to persist in the near term, such speculation is only likely to intensify.

Emerging market woes weigh on dividends

At face value Standard Chartered remains an attractive medium-term selection for income investors, and City analysts expect the firm’s progressive dividend policy to keep on delivering over the next couple of years. However, the town’s number crunchers have drastically cut their growth projections through to the end of 2015, with last year’s payout of 86 US cents per share now anticipated to rise to just 89.5 cents and 95.7 cents this year and next.

The effect of ongoing travails in its Asian markets forced Standard Chartered to raise the full-year dividend just 2.4% last year, the worst increase for over five years. And although projections for 2014 and 2015 create yields of 4.3% and 4.6%, a cautious outlook in these geographies and subsequent problems with the balance sheet could in fact crimp payout expansion during this period and possibly beyond.

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Royston does not own shares in Standard Chartered. The Motley Fool owns shares in Standard Chartered.