What's going on?
British multinational bank Standard Chartered reported weaker-than-expected annual results on Tuesday – and it followed the hottest trend among red-carpet companies right now by announcing yet more restructuring.
What does this mean?
Restructuring can take the form of changes to a company’s operations (like splitting activities into more independent businesses) or to its debt (like repaying bondholders with shares instead of cash). But whatever the measures taken, they usually have the same objective: lowering costs.
Standard Chartered, hit by economic uncertainty in its crucial Chinese and British markets (snap, HSBC), is now accelerating its plans to slash $700 million of costs in the next three years and double its profitability. Since arriving in 2015, the bank’s CEO has already cut 15,000 jobs – but more may be for the chop as part of a plan to scale back mass-market banking in some countries, focusing on online offerings and more dependably profitable wealth management instead.
Why should I care?
For markets: Restructuring announcements can go either way.
Investors might welcome company restructuring plans and buy up the stock in anticipation of higher earnings growth to come. But they may also run a mile, dubious of success and alarmed by high up-front costs. While Standard Chartered’s stock fell slightly on Tuesday, shares of Hyundai (the world’s third-largest automaker) rose after the Korean company’s vehicle parts subsidiary announced an investor-rewarding restructuring plan of its own. Hyundai simultaneously rejected notorious activist investor Elliott Advisors’ demands for even higher payouts.
Zooming out: Bank of America Merrill Lynch.
Sometimes restructuring is more subtle. Bank of America announced this week that it’d drop the name of the 105-year-old business it bought in 2008 from its investment banking and trading activities (tweet this). And when it comes to wealth management, it wants to be known as just Merrill from now on. Changing a company culture can take longer than any operational or financial shift. Switching Merrilly may be the final stroke in a decade-long row, row, row down the integration stream.