Standard Chartered Is Trying to Get Out of Private Equity

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 [e-mail]

(END) Dow Jones Newswires

September 27, 2016 06:15 ET (10:15 GMT)

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