Macquarie downgrades StanChart, analysts left scratching their heads

Standard Chartered's restructuring plan is "rather uninspiring" Macquarie told clients on Thursday, downgrading its recommendation because in its opinion the bank had turned itself from a '2018 hope story' into a '2020 hope story'.

The Asia-focused lendder's strategic plan lacked direction, Macquarie said, and the capital raise only addressed the smallest of the lender's three problems.

The other two were asset quality and "a potentially broken business model that has to be restructured by exiting subscale and underperforming markets and businesses," analysts wrote.

StanChart in Wonderland: how deep does the 'rabbit hole' go?

"To raise new equity at 0.40x price-to-book value (1H15) leaves one scratching their head. It is far from certain where the new capital may go and raises the question whether the capital increase is enough, in our view," they added.

Asset quality was "deteriorating rapidly" and it was unclear how deep the rabbit hole goes.

Asset quality concerns had replaced capital worries, the analysts wrote, adding that for StanChart to increase its coverage for non-performing loans from the current 58% to 100% would require $4bn in provisions.

Macquarie thus slashed its estimates for earnings per share in 2015-2017 to reflect lower revenue, higher cost and higher loan-loss provision assumptions and to adjust for the upcoming rights issue.

Excluding the value of the rights issue, the new 12-month target price was set at 550p, down from 700p and its recommendation downgraded to 'underperform'.