Standard Chartered Is Trying to Get Out of Private Equity
September 27 2016 - 5:30AM
Dow Jones News
By Margot Patrick
LONDON--For 15 years, Standard Chartered PLC would often double
its money on stakes it bought in up-and-coming companies in Asia,
Africa and the Middle East. Now, losses from some recent
investments and a regulatory clampdown has it looking for ways to
get out of private equity.
Standard Chartered is close to deciding on a plan to spin off
its principal finance arm to an internal team led by unit head Joe
Stevens, people familiar with the proposal said. Under the plan,
Mr. Stevens and his team would set up a private investment firm to
manage the $5 billion in stakes Standard Chartered has bought, and
raise money for new investments. Standard Chartered would divest
its shareholdings in the roughly 85 companies over time as new
investors were found to replace it, one of the people familiar with
the proposal said, possibly at a stepped-up pace to let the bank
make a full exit.
Standard Chartered has around $2 billion of its own money
invested with the unit. The decision comes as Standard Chartered
feels the heat from a Justice Department probe into its dealings
with one of the companies it bought shares in, Indonesian
power-plant builder Maxpower Group Pte. Ltd. Maxpower said it has
fired its three founders, improved internal controls and continues
to investigate the issues. The Justice Department declined to
comment.
Shedding the principal-finance business would end a largely
successful run of Standard Chartered making equity investments in
growing companies since 2001. Returns from the investments could be
"spectacular," a former Standard Chartered executive recalled.
As Standard Chartered grew its assets by fivefold between 2004
and 2014, being able to offer entrepreneurs and other customers
equity was a calling card that many competitors couldn't offer. The
bank also often arranged loans for the companies it invested
in.
Conditions for the private-equity business started to change
after the financial crisis when new rules forced banks to hold more
capital against such investments. A slowdown in some of Standard
Chartered's key markets, and a selloff in oil and commodity prices
meant it was taking longer for the bank to exit its investments,
people familiar with the unit's operations said.
Meanwhile, regulators including the Federal Reserve and the Bank
of England have stepped up pressure on banks to close out the
businesses. Earlier this month, the Fed recommended a ban on banks
holding significant stakes in companies, in part because of the
legal risks banks could face as part-owners.
Standard Chartered's private-equity group lost $167 million in
the first half. Standard Chartered Chief Executive Bill Winters
said in August the business had done well in the past but indicated
it might have to go.
"It's been a more difficult business to carry from a regulatory
perspective and we are looking at ways that we can effectively
reposition the funding of that business," Mr. Winters said.
A bank spokesman declined to comment on the spinoff plan but
said it continues to look at businesses that "do not sit within our
tightened risk tolerance."
Ben Otto in Jakarta contributed to this article.
Write to Margot Patrick at margot.patrick@wsj.com
(END) Dow Jones Newswires
September 27, 2016 06:15 ET (10:15 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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