How Sands fell from grace at Standard Chartered

By Steve Slater and Lawrence White

LONDON/HONG KONG, Feb 26 (Reuters) - In summer 2012 PeterSands was flying high as Standard Chartered ChiefExecutive, batting back questions on whether he was tempted torun Barclays or even the Bank of England.

Praised for steering a safe path through the financialcrisis, the former McKinsey consultant had just delivered bumperhalf-year earnings to set his Asia-focused bank on course for a10th straight year of record profits.

But days later, when Sands had gone on holiday, New York'sbank regulator accused the bank of being a "rogue institution"that hid $250 billion in transactions tied to Iran and left theUnited States vulnerable to terrorists.

It was the start of a run of trouble that saw Sands oustedon Thursday following a rebellion by key shareholders.

Investors cited failures in strategy, execution andgovernance, leaving new CEO Bill Winters with a lot to do.

Investors have said Chairman John Peace needs to share theblame for Standard Chartered losing its sparkle, and he isleaving in 2016 once Winters has settled in.

Critics said Sands, 53, too often blamed external factors,such as changes in Korean law or tougher global regulations, andfailed to restructure the bank quickly.

They said he was good at growing the bank, but failed to axejobs and businesses when Asian growth stalled.

Sands survived 2013, sustained by his record of making goodreturns for shareholders, but by early 2014 some top investorswere privately talking about replacing him.

It was suggested he might become chairman, but he said hehad no interest in that and pressed ahead with plans to get thebank back on track.

Disquiet about the pace and depth of change grew as the yearprogressed, and behind the scenes, the bank's second biggestshareholder Aberdeen Asset Management was agitating for change.

Its biggest investor, Singapore sovereign wealth fundTemasek, meanwhile, had long voiced concerns about governance.

By the end of last year, Aberdeen's CEO Martin Gilbert waspressing Peace to replace Sands, a source familiar with thesituation told Reuters. Gilbert also told Sands he should go.

In December the board decided change was needed, anothersource said. They wanted a successor before the annual generalmeeting in May, otherwise another fiery shareholder gatheringwas inevitable.

Headhunter Egon Zehnder was tasked with finding thesuccessor. Sands was aware of the process, a source said.

Sands, with his spiky white hair and Harry Potterspectacles, grew up in Asia and previously worked for theBritish Foreign Office and McKinsey.

ON THE ROPES

Insiders said Standard Chartered has been on the ropes eversince New York's regulator launched its broadside.

The bank's response was typical of a company that did notdeal well with bad news: it felt hard done by.

It paid a fine of $667 million and avoided losing its statebanking licence. But the row left the bank slow to respond whenmore problems arrived. Its 19-member board looked unwieldy andreluctant to challenge management, investors said.

The bank had also aggressively increased its lending duringits boom era, and rival bankers said it appeared to relaxlending standards and carried some major single name exposures.

Losses from bad loans rose last year, and investors fearthere could be more problems from $61 billion of loans tocommodities companies, built up over the last five years.

Other problems have surfaced. Staff morale is said to below; several senior executives left, including finance directorRichard Meddings; and more than 40 percent of shareholdersrebelled against the pay plan at last year's AGM.

Yet the bank remained profitable, unlike many rivals, andits expected 2014 profit of about $5.7 billion is double itslevel when Sands became CEO.

Sands set out plans to cut $400 million in annual costs and4,000 jobs, including taking out layers of management andshutting some areas, including its loss-making equitiesbusiness.

But analysts expect Winters to cut more of the bank's 89,000staff, which has doubled under Sands, and also quickly addresswhether to raise capital. Sands has resisted calls to raisecash, in contrast to 2008, 2009 and 2010 when he moved quicklywhen funds were needed to improve capital and grow the business.

Standard Chartered's shares have almost halved in the pasttwo years, against a 19 percent rise in the European bank index. That has undone much of Sands' good work in his firstfive years, leaving shares down a fifth since he became CEO inNovember 2006.

"Sands did very well, but he was there too long. The boardsupported everything he did so the guy feels he is walking onwater and that lowers your guard," said a senior banker at arival firm.

Investors welcomed the appointment of Winters, but some saidthe bank may need to go further and consider moving to Singaporeor Hong Kong to re-orient itself towards Asia.

The bank has said it keeps its domicile under review, andLondon has remained its preferred home in recent years.

Sands admitted on Thursday the last two years had beendifficult but put a brave face on his exit.

"It was always our intention to begin a handover processaround now ... now is the right time for me to hand over," hesaid. (Additional reporting by Sinead Cruise, Alexander Smith andSophie Sassard; Editing by Giles Elgood)