Most business leaders would think twice about joining a bank that had recently been slapped with fines totalling hundreds of millions of dollars.
But addressing huge reputational damage following $640m (£458m) of penalties inflicted on Standard Chartered in 2012, after it was found to have breached US sanctions on Iran, was part of the attraction for Andy Halford who took the top finance job at the bank in July 2014.
But more bad news was on its way. A month later the UK-headquartered bank was handed a further fine of $300m from the New York State Department of Financial Services (DFS) on top of a $340m penalty it received from the DFS in 2012, this time over lapses in its money-laundering procedures.
Halford was undaunted. Having built up a 15 year finance career at telecoms giant Vodafone, most of that time as group CFO, he relished “a really interesting set of challenges.”
Although he didn’t initially consider joining a bank, Halford says he was drawn to parallels with Vodafone. “They both operate in many different markets, are headquartered in London, and are very high volume transaction business, with very low tolerance of error. Both have, to different degrees, a fair amount of regulation,” he says.
The decision to leave Vodafone came after the telecoms giant opted to sell its share of hugely successful US joint venture Verizon Wireless- a business he’d been involved with for a decade- that delivered the world’s biggest single return to shareholders when sold, worth £51bn. It was also the third biggest corporate deal at $130bn, Vodafone’s acquisition of Germany’s Mannesmann in 2000 was the biggest, at $183bn.
He’d been group CFO for most of a decade in a Vodafone career that had seen the telco rapidly grow on the back of the explosion in mobile technology. “When I joined, Vodafone had eight million customers worldwide, when I left after 15 years it had 450 million,” he says.
Halford says he wanted to “find something that would be suitably different and challenging compared with what I had already done”. What happened next reveals the full set of challenges he and the Standard Chartered board faced in 2014.
The darkest hour
After a profitable ten year run, right through the financial crisis, Standard Chartered’s performance was beginning to wane. “The downturn in the results of the business in the first year I was with the bank were somewhat more severe than I had appreciated from the outside, and indeed may have been more than had been appreciated internally,” Halford reveals.
A perfect storm gathered of many negative situations unfolding at the same time around the world. “There can be no alarm bells ringing at clients, then alarm bells start to ring in a number of clients simultaneously. Then it all becomes more difficult,” he says.
“That’s because the proof of whether one has made a good lending decision is often not known for three, four or five years after taking the decision. It’s only when one starts to see things appearing in the cracks that one can realise the severity of the issues. You can have a ripple effect as well where one situation can prompt another and another,” he adds.
Such was the level of challenge that Standard Chartered experienced within nine months of Halford’s arrival that he was soon joined by new CEO Bill Winters in the Spring of 2015. In November the bank hastily pulled off a $5bn right issue and updated the market on its strategy. “There could be very few better ways of getting to understand the business very quickly,” he says.
The new strategy that the bank embarked on involved a clearing up of riskier business lines- deemed absolutely vital given that the group faced the possibility of losing its licence to operate in the US- the kiss of death for a global bank.
The actions taken to rebuild the bank, by improving operating standards and bolstering its long term capital strength, resulted in it suffering a loss of $2.4bn for 2015 (its first in 26 years) and $478m for the following year. “We had to be very decisive. We had to tighten a lot of lending decisions and criteria,” Halford informs.
Critical to the plan hatched by Halford and Winters, was rebuilding the culture of the bank- by redefining its focus and clarity of purpose. “That meant assessing what the bank was good at, and not good at, and communicating that to our 85,000 people. The business had been making the most of every opportunity that was going, but with that had come some diffusion of objective,” says the CFO.
The next goal was to redefine behaviours through a common sets of standards, no mean feat across the broad swathe of countries the bank was operating in, from Nigeria to China. “We asked: What are the values that we applaud, what are the values that we won’t tolerate. That was a very important part of the turnaround story,” says Halford.
Fortunately there was plenty of internal buy-in for the changes, staff recognising how precarious a position the bank was in. “Our people saw the results deteriorate, the share price deteriorate, and did not take much persuading that change was needed, even though that change was accompanied by significant cost reduction, headcount reduction, things that were not hugely popular,” reveals Halford.
“I think most people realised unpalatable medicine was needed to be taken. But until [positive] results did start to come through, there was a slight leap of faith,” he admits. In February the bank returned to the black, unveiling net profit of $774m on revenues of $14.4bn for 2017 and announcing a resumption of the dividend.
Rebuilding the house
Although Standard Chartered exited Iran and reduced its retail offer in some other countries, the bank largely retained its structure across 60-plus nations. “If we were to shut down in those markets, we would lose the uniqueness of the model which is our calling card.”
Many of the countries Standard Chartered operates in are described by Halford as “interesting”. That could mean they have huge potential, but also significant geo-political risk, reflecting the broader strategy remit he enjoys as part of the CFO role. No two days are the same, he says.
“In one country we had the military trying to repossess one of our buildings last night, which fortunately after various discussions early this morning was handed back to us. From time to time that sort of thing happens,” he remarks.
That strategy role requires making judgements based on the insights that feed through from the vast amount of data at the bank. “A large part of making a business like this work, is forming judgements as to which parts we should push hard on, and which ones we should just retain a presence in,” he says.
The example of how a $100m loss in South Korea was transformed into a $100m profit two years later through tweaks including inserting a new management team is referenced to illustrate the point.
But despite the recent challenges, Halford is confident that Standard Chartered is well placed to continue capturing value from continuing global trade, “not with-standing the rhetoric in some parts of the world.”
He says the long term economic pivot to Asia will stand the bank in good stead. “If you started the model now it would be difficult to put such an interesting set of businesses together,” adds Halford.
There are some rumblings from Halford on the rise of regulation since the financial crisis. “When you have 60 countries’ regulations to comply with, it does not make being a multi country bank easier,” says Halford. “But it doesn’t mean to say the opportunity isn’t any greater,” he adds.
A growing part of the bank’s focus is in investment in technology, despite the challenge of disrupters in the fintech space. “We need to protect our boundaries, but also think more laterally about how we can use those technologies, to greater effect.
“Spending time thinking about how we’re going to use technology to the greatest advantage, which parts of the world we should be investing more in, or less in, is a fascinating part of the role,” says Halford, building on his Vodafone experience.
He also believes that mobile banking technology can deliver hugely beneficial effects across the world- especially in Africa. “There are a lot of people on that continent for whom a mobile based payment system makes a huge amount of sense, given the size of the geography and the general lack of visible banks.”
More broadly, he believes that Standard Chartered can make a positive impact in a continent where few international banks operate. “The prime minister of an African country said to me that when a bank like Standard Chartered puts its name behind an international bond issuance, the credibility that it gives that country should not be underestimated,” he says.
Given the bank’s recent challenges, “such a statement is hugely motivating to restoring the bank’s standing, given its proud history,” says Halford. “There is a confidence amongst our people that we can get back to where we were, something that wasn’t the case a little while ago,” he adds.