Bricks come loose from StanChart tower amid whispering campaign

Trouble at StanChart Two years ago, Standard Chartered was cock of the walk. It had delivered a decade of constant growth of revenue and profits. It had come through the global financial crisis all but unscathed. And its top team looked as secure as they were self-assured.

But times have changed. Over recent months, Peter Sands, the chief executive, has been the victim of a whispering campaign, with some of the bank's big shareholders voicing complaints privately that they would not repeat in public. Sir John Peace, StanChart's chairman, is under pressure himself, accused by some investors of not having enough time to spend on the bank in its hour of need.

No shareholder has publicly called for either man to go, but privately many say that something has to change - and their disappointment has only grown after a recent trading update that pointed to a "disappointing" 20 per cent fall in profits in the first half of the year.

Some want a new chairman, others want a new chief executive, a few want both men out.

"There's a dangerous intellectual arrogance at the top," says one top 10 shareholder. "That has to change."

A hint of hubris was perhaps inevitable, after StanChart's extended period of success, racked up as rivals from Citigroup to HSBC went through the trauma of the financial crisis. Now that the Asian-focused bank is facing a reversal of fortunes, interviews with more than two dozen investors, analysts, rivals and insiders reveal an organisation that is struggling to adapt to a new way of doing things.

Shareholders accept that a bank specialising in emerging markets will have ups and downs in its performance that are more extreme than more global rivals. But critics of StanChart's current leadership argue that a string of botched management and governance decisions have made matters far worse than they needed to be.

"The mood is desperate," says an investor. "Morale is tough," says a senior executive. "Senior [frontline bankers] are leaving."

One Asian rival says he is benefiting from "the infighting" at StanChart. "We have a lot of CVs coming in at the moment. They've made a lot of mistakes," he says.

The first, and most embarrassing of StanChart's operational errors - breaching US sanctions on Iran for eight years and then mishandling the fallout two years ago - has probably been the most insidious.

Today, StanChart's $667m penalty looks like a snip compared to the $9bn settlement that France's BNP Paribas had to fork over to US authorities for sanctions violations. But according to people close to the situation, the 2012 penalty caused a deterioration in StanChart's relationship with its biggest shareholder, the Singaporean fund Temasek, which owns an 18 per cent stake.

Worse still, the affair triggered the disintegration of the management trio that had led StanChart's successful expansion.

The unravelling began in 2006, with three little words written by the then finance director Richard Meddings to a colleague. In the email exchange, recounted anonymously in the US settlement documents, Mr Meddings criticised "you f---ing Americans" for imposing sanctions on Iran.

The comment, when discovered, peeved US prosecutors, steeling their resolve to exact a stiff penalty for StanChart's sanctions breaches. That in turn started to drive a wedge between Mr Meddings and the other two men at the helm of the bank - Mr Sands and Mike Rees, then wholesale banking chief, now deputy CEO - who were angry that Mr Meddings had been so unguarded.

By the time the bank reluctantly admitted its wrongdoing - heeding investor pleas to drop its defiant stance - the broader mood had begun to turn against the bank.

A few months later, when StanChart just squeaked through a tenth consecutive year of profit growth (the pre-tax number for 2012 was a rise of 1 per cent), investors focused on the 34 per cent leap in bad debt provisions.

The shares have tumbled by more than a third since then. Only the sick banks of Europe - the likes of Bankia, Banco Espirito Santo and National Bank of Greece - have performed worse.

StanChart's response early this year was to shake up its top team. But critics saw this exercise as the second botch.

The rejig elevated Mr Rees to a powerful new position of deputy chief executive and led to the departure of four senior executives - Mr Meddings, Steve Bertamini, head of the bank's consumer arm, Lenny Feder, boss of its financial markets unit, and Ray Ferguson, leader of its Singapore office. Rahul Goswamy, global head of strategic client coverage, is also leaving.

Several large investors hated the changes. First, it consolidated power in the one man that many blamed for an over-aggressive build-up of the group's corporate and investment banking operations. Suddenly, the bank's business heads all reported directly to Mr Rees rather than to the CEO, sending a signal that Mr Sands would be further from the day to day running of the bank.

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The changes also did not address widespread criticism that the bank is run like a colonial empire. The chairman and three top executives are all London-based and rarely interact in person with operational business heads in Asia.

Insiders are particularly scornful of the decision to hold off-site management meetings at Mr Rees's estate in Italy, where he has a vineyard and raises a rare breed of cattle. "We waste three days getting there and back. We should be doing it in China, not in Tuscany," says one executive. The set-up is symptomatic, says another. "[It] gives you a sense that arrogance at the bank has got so high".

By elevating Mr Rees to deputy-chief executive, but at the same time letting it be known this was not the bank's next CEO, Mr Sands also shored up his own position - especially as the rejig removed other potential candidates for the top job.

Losing Mr Meddings as the bank's finance director deprived investors of a trusted interlocutor and removed a man that many saw as a key part of a balanced management set-up. "With Meddings gone, it's like a game of Jenga," says one of the investors. "Now that you've pulled one piece out, the tower starts to shake."

Critics also bemoan the lack of career bankers at the helm. Sir John is a retailer. Mr Sands has a background in management consulting. And the new finance director, Andy Halford, though respected, has no background in banking.

All of the above has hardened the anti-Sands faction in StanChart's shareholder base, but Sir John has also come in for his share of criticism in recent weeks.

Many StanChart investors are also shareholders of Experian and Burberry, which Sir John also chairs. All three were subjects of shareholder protest votes this spring - two on pay and one about a governance issue. Sir John has defended all three boards' decisions. He insists, having given up his role at Experian, that he can continue to juggle the other two FTSE 100 chairmanships.

Sir John seems for the time being at least to have internal support. "John is a very, very good chairman," says one person who has seen him in action.

As for Sir John himself, he says he and Mr Sands are "determined to get this bank back on the growth trajectory".

Whether investors give them the time to do so is an open question.

Profiles: key players at StanChart

Sir John Peace, chairman

The son of a coal miner and graduate of Sandhurst military academy has faced hostilities this year in the form of big protest votes at the annual meetings of the three FTSE 100 groups he chaired: Standard Chartered, Burberry and Experian. He has since stepped down from the latter but still faces calls to drop one of the other two.

Peter Sands, chief executive

Standard Chartered was on his client list when the Oxford- and Harvard-educated former Foreign Office trainee worked as a consultant at McKinsey. The bank hired him as its finance director in 2002 and he was promoted to replace Mervyn Davies as chief executive four years later, launching a rapid growth spurt.

Mike Rees, deputy chief executive

Consistently the bank's best paid executive director, earning more than $50m in the past four years, he has overseen a sevenfold rise in pre-tax profits at its wholesale banking arm since becoming its head in 2002. A chartered accountant by training, he joined the lender in 1990 from JPMorgan and this year took charge of all business lines.

Richard Meddings, former chief financial officer

There are various versions of what exactly triggered his surprise exit after seven years as the bank's finance director. Some observers cite a bust-up with Peter Sands, others point to friction with US regulators over a settlement of sanctions violations in 2012. Most analysts reckon he has a strong supporter base in the City and will appear in a new job soon.

Naguib Kheraj, board member

Often cited as a potential candidate to be the bank's next chairman, he joined its board in January after an eclectic career. A senior adviser to the Aga Khan Development Network, he previously advised the UK financial regulator and the National Health Service, as well as doing stints at Barclays, JPMorgan Cazenove and Lazard.

The shareholders

More than 40 per cent of investors voted against the bank's pay policy in May in protest over a shift of executives' variable pay to shorter term targets. It could have been worse if the top two shareholders - Singapore's Temasek and Aberdeen Asset Management - had not voted in favour. With the share price down a third from last year's peak, investor patience is wearing thin.

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