Profitability Has Returned at Standard Chartered; Medium-Term Focus is its Cost of Capital by 2021

Standard Chartered’s massive upheaval has delivered improved profitability with the bank now looking to increase return closer to its cost of capital. The turnaround has been difficult, but we think CEO Bill Winters had the right approach. He’s rectified issues with the bank’s risk controls, culture, cost base, and across markets and products where it lacks the necessary scale to be competitive. In our view, structural changes in the banking sector from heightened regulatory compliance and capital requirement mean the bank’s days of consistent midteens return on equity are behind it. The bank is targeting a return on tangible equity, or ROTE, of 10% by 2021, and we forecast increases toward this target over our explicit forecast period.