Driving Investment, Trade and the Creation of Wealth Across Asia
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Annual Report 2014 Driving investment, trade and the creation of wealth across Asia, Africa and the Middle East Standard Chartered PLC PLC Chartered Standard Annual Report 2014 About us We are a leading international banking group, with more than 90,000 employees and a 150-year history in some of the world’s most dynamic markets. We bank the people and companies driving investment, trade and the creation of wealth across Asia, Africa and the Middle East, where we earn around 90 per cent of our income and profits. Our heritage and values are expressed in our brand promise, Here for good. Standard Chartered PLC is listed on the London and Hong Kong Stock Exchanges as well as the Bombay and National Stock Exchanges in India. For more information please visit sc.com Explore our insights and comment on our blog at sc.com/beyondborders Follow Standard Chartered on: @StanChart linkedin.com/company/standard-chartered-bank facebook.com/standardchartered Enhancing our reporting Unless another currency is specified the word In line with global developments in reporting, we are no longer publishing a separate ‘dollar’ or symbol ‘$’ in this document means sustainability review. Instead, sustainability reporting is embedded across this annual US dollar and the word ‘cent’ or symbol ‘c’ means one-hundredth of one US dollar. report, reinforcing our commitment to sustainability as the foundation of our business. Within this document, the Hong Kong Special We hope you will find this enhancement to our reporting useful and informative. Administrative Region of the People’s Republic of China is referred to as Hong Kong; The Republic of Korea is referred to as Content symbols Korea or South Korea; Greater China includes Hong Kong, Taiwan, China and Macau; Further information is available where you see these icons: North East Asia (NEA) includes Korea, Japan and Mongolia; Middle East, North Africa and Additional information Pakistan (MENAP) includes the United Arab can be found within the report Emirates (UAE), Bahrain, Qatar, Lebanon, Jordan, Saudi Arabia, Egypt, Oman, Iraq More information and Pakistan; South Asia includes India, is available online Bangladesh, Nepal and Sri Lanka; and ASEAN includes Singapore, Malaysia, Indonesia, Brunei, Cambodia, Laos, Philippines, Thailand, Vietnam, Myanmar and Australia. Standard Chartered PLC is headquartered in London where it is authorised by the Prudential Regulation Authority (PRA) and regulated by the Financial Conduct Authority and PRA. The Group’s head office provides guidance on governance and regulatory standards. Standard Chartered PLC stock codes are: HKSE 02888; LSE STAN.LN; Cover: and BSE/NSE STAN.IN. Mumbai’s Chhatrapati Shivaji Terminus, a bustling railway station and UNESCO World Heritage Site Strategic report Group overview overview Group reportStrategic Performance highlights 2 Chairman’s statement 3 Group Chief Executive’s review 5 Our strategy 8 Our business model 9 Key performance indicators 10 Risk management 12 Governance overview 16 Directors’ remuneration overview 18 Business environment 20 People 23 Sustainability 26 Operating and financial review review financial Operating and Our business 30 The Group in 2014 35 Financial review 41 Risk and Capital Risk overview 58 review Risk and Capital review Risk profile 64 Principal uncertainties 101 Risk management approach 105 Capital 118 Directors’ Board of directors 128 report Directors’ report Senior management 132 Corporate governance 133 Directors’ remuneration report 170 Other disclosures 210 Statement of directors’ responsibilities 219 Financial Independent Auditor’s report 222 notes and statements Financial statements Consolidated income statement 225 and notes Consolidated statement of comprehensive income 226 Consolidated balance sheet 227 Consolidated statement of changes in equity 228 Cash flow statement 229 Company balance sheet 230 Company statement of changes in equity 231 Notes to the financial statements 232 Supplementary Supplementary financial information 310 information Supplementary information Supplementary people information 326 Shareholder information 328 Glossary 330 Major awards 2014 334 Index 336 1 Performance highlights Executing our refreshed strategy Normalised return on equity1 % Operating income2 $million Profit before taxation2 $million (2)% 12.8 18,783 18,777 18,334 6,851 11.2 6,064 (30)% (30)% 7.8 4,235 2012 2013 2014 2012 2013 2014 2012 2013 2014 Total assets $billion Normalised earnings per share1 cents Dividend per share3 cents 8% 0% 726 225.2 84.0 86.0 86.0 674 204.0 631 (28)% 145.9 2012 2013 2014 2012 2013 2014 2012 2013 2014 Operating income by client segment $million Operating income by product group $million Operating income by region $million Wealth Management Americas Private Banking Clients Commercial Clients 1,701 Europe 861 1,182 612 Retail 1,234 3.3% 4.7% Greater Others4 Products 6.5% 9.3% 4,840 North East 6.7% China 2,004 Asia 5,540 26.4% 1,459 Corporate & 10.9% 8.0% 30.2% Institutional Clients 10,531 Africa 10.0% Retail 32.8% 18,334 18,334 1,829 18,334 Clients 57.4% 13.6% 6,009 Corporate Finance 2,487 20.7% 10.1% 19.1% MENAP 20.2% Transaction 1,843 10.1% Banking ASEAN 3,802 3,713 Financial South Asia Markets 1,855 3,500 1. Standard Chartered uses non-generally accepted accounting principles (GAAP) 3. Represents the recommended final dividend per share for the respective years measures, where these are not defined under International Financial Reporting together with the interim dividend per share declared and paid in those years. Standards (IFRS) or they have been adjusted. Normalised earnings are defined Further details are set out in note 13 to the financial statements in the Glossary on page 332 and in note 14 to the financial statements 4. Others include Lending and Portfolio Management ($1,026 million), Asset and 2. Operating income includes own credit adjustment (OCA) benefit of $106 million and Liability Management ($653 million) and Principal Finance ($325 million) $100 million for 2013 and 2014 respectively. Profit before taxation for 2013 and 2014 include OCA and goodwill impairment. 2014 also includes $300 million in respect of the civil monetary penalty. 2012 included $667 million due in respect of settlements with the US authorities 2 Standard Chartered Annual Report 2014 Chairman’s statement overview Group reportStrategic Resolved to restore shareholder value “2014 was a challenging year and our performance was disappointing, but it was also a year when we took decisive action to refocus our strategy and to reposition the Group for the future” Sir John Peace Chairman 2014 was a challenging year and our performance ●● Profit before taxation, goodwill impairment, was disappointing, but it was also a year when we took decisive action to refocus our strategy and to reposition own credit and the civil monetary penalty the Group for the future. was down 25 per cent to $5.2 billion The Board continues to believe that there are significant ●● opportunities for the Group in the medium to long term across Statutory profit before taxation was down our footprint, and that is why we have been careful not to take 30 per cent to $4.2 billion any knee-jerk actions that may damage the long-term prospects of the business. ●● Income excluding own credit adjustment fell However, at the same time, we need to be mindful that there 2 per cent to $18.2 billion are significant factors impacting our current performance which cannot be ignored: the imperative to build capital levels across ●● Normalised earnings per share declined the industry; the need for ongoing investment in enhancing 28 per cent to 145.9 cents our systems and processes associated with conduct and compliance; and the need to change the shape of our business to fit the demands of the current economic and regulatory landscape. Normalised earnings per share Dividend per share As a consequence of this, the Board has recently endorsed a number of priority areas. The first of these was to provide clarity 145.9 cents 86.00 cents on our governance, leadership and succession plans, and we are going further by highlighting a number of other priorities: 2013: 204.0 cents 2013: 86.00 cents taking steps to build on our capital levels, enhancing our return on equity and continuing to improve our conduct and compliance capabilities. The Board is determined to reshape the business to restore the Group’s performance and to fully realise the opportunities in our markets. At the same time, we are determined to continue to raise the bar on conduct and compliance to ensure that Here for good, our brand promise, is firmly embedded in the DNA of the Group worldwide. Whilst we are comfortable with our current capital position, the Board does want to improve our capital trajectory, so we are taking actions around risk-weighted assets, cost reductions and business disposals, all of which are aimed at strengthening both our Common Equity Tier 1 ratio and our trajectory going forward. 3 Chairman’s statement We believe that we have identified strong levers to manage We are therefore confident that we are taking the right actions capital accretion over time and therefore the Board is to restore shareholder value. recommending a final dividend for 2014 of 57.20 cents, resulting I would like to thank our clients and shareholders for their in a total annual dividend of 86.00 cents, which is the same support during 2014 and, above all, our great people for their level of dividend per share as 2013. hard work and ongoing commitment to Standard Chartered. For several years, we have significantly increased the amount paid out to shareholders by way of dividend, while at the same time consecutively reducing the amount paid out in bonuses, despite increasing staff numbers over this period. In 2014, we are again proposing to pay out more to our shareholders by way of dividends than we pay out in bonuses.