Nomura stays neutral on Standard Chartered as rights issue concerns remain

5th Aug 2015 15:08

(ShareCast News) - Nomura has reiterated its 'neutral' rating on Standard Chartered and a target price of 1,170p after the FTSE 100 bank's interim results on Wednesday.Second-quarter revenues were materially weaker than consensus expectations, with costs comparable with the consensus expected run-rate but asset quality trends also materially weaker.The key positive was seen as capital ratios, with a CET1 ratio of 11.5% up from 10.7% at year-end, though it was noted that 40 basis points of the improvement came from unsustainable sources and 50 basis points was attributable to a reduction in risk-weighted assets (RWA)."In the near term, the key question for STAN is will it raise equity? We regard this as a function of asset quality write-offs and RWA rundown," Nomura said.Nomura suggested that if the lender is "not far off" from being happy with the size of the business in RWA terms then an equity raising along with third-quarter results is likely."If that is through a rights issue, then there is material downside in the stock.""If, however, management decides it can shed RWAs, say a quarter of the group like HSBC, then that is effectively a capital raise, and the question is whether the group can make double-digit ROTE. That is likely to be a multiyear journey."