Standard Chartered shares drop as Jefferies suggests dividend cut

15th Jun 2015 11:03

Shares in Standard Chartered fell 2% on Monday after Jefferies cut its price target on the stock to 656p from 722p and warned that the company may cut its dividend to bolster capital."The incoming chief executive officer's need to improve capital ratios leads us to halve our dividend per share forecast as well as move from modest loan growth to shrinkage," said Jefferies, noting that its 2015-2017 earnings per share estimates are 17% below consensus."Asset reduction is only one area where we believe Standard Chartered can mitigate capital pressures. Another obvious area is the dividend policy which we believe will be a focus of Mr Winters' attention," it said.Jefferies said that the consequence of balance sheet reduction is lower near-term earnings power. It expects StanChart's return on tangible equity to average 7.6% over 2015-2017, meaning that investors would have to reassess sustainable return prospects for the bank.Jefferies said: "Whether or not our base case assumption that StanChart shrinks its balance sheet to preserve capital is realised, or, management decide to embark up on a rights issue as a more permanent 'insurance policy' against the entirety of the bank's balance sheet, the earnings power of the bank is likely to be far below what the consensus expects."It rates the stock at 'underperform'.