Having been under pressure for a number of months, Standard Chartered’s (LSE: STAN) (NASDAQOTH: SCBFF.US) CEO, Peter Sands, will leave the bank in June. He will be replaced by Bill Winters, the former head of JP Morgan’s investment bank, who will start work in May and be paid a salary of £1.15m.
Unsurprising Change
Of course, Peter Sands’ departure is somewhat unsurprising. His position has been under major scrutiny after the bank released multiple profit warnings last year, while continued allegations of wrongdoing have also caused investor sentiment to decline. In fact, in the last two years Standard Chartered’s share price has fallen by a whopping 46% and, therefore, it is perhaps inevitable that changes are being made at the present time.
Further Changes
In addition to a new CEO, Standard Chartered will also have a new Chairman, with Sir John Peace now due to step down next year. Furthermore, the bank will seek to shrink its board to 14 members, with three non-executive directors set to leave this year and the head of its Asia operations, Jaspal Bindra, also ceasing to be a board member. As such, today’s changes are major, sweeping and could have a significant impact on the long term future of Standard Chartered.
Looking Ahead
Clearly, the new management team at Standard Chartered will make changes to the bank’s strategy and, as is the case with any new senior appointments, may seek to release any disappointing news flow as early as possible. As such, the bank’s share price may offer little prospect for outperformance in the short run, as the market awaits the start of a new era for the Asia-focused bank.
However, even though it yields 5.5% at the present time, a cut to Standard Chartered’s dividend seems somewhat unlikely. That’s because it is very well covered by profit, with the bank’s dividend coverage ratio being an impressive 2.09. This means that, even if profitability does continue to decline, Standard Chartered should still be able to afford to pay at least its current level of dividends.
Of course, how quickly dividends rise is another matter, and it could be the case that a new management team holds dividend growth back until the bottom line starts to show signs of significant improvement following two years of negative growth.
Valuation
While the future of Standard Chartered is decidedly uncertain at the present time, it seems to be well-worth buying if you are a long term investor. Certainly, there is likely to be considerable volatility in the bank’s share price in the months ahead but, with its shares trading on a price to earnings (P/E) ratio of just 8.7 and having a yield of 5.5% (as mentioned), it seems to include a vast margin of safety. This means that, even if news flow does disappoint in the short run, it could prove to be an excellent long term investment.
