ii view: Standard Chartered restarts shareholder returns

China-US tensions and the pandemic made for a tough 2020 for this Asia-focused bank. Buy, sell or hold?

Full-year results to 31 December 2020

• Pre-tax profit before tax down 57% to $1.6 billion
• Earnings per share down 52% to 36.1 cents
• Credit impairments up 153% to $2.3 billion
• Final dividend of 9 cents per share
• $254 million share buy-back programme
• Capital cushion up 0.6% to 14.4%

Guidance:

• Overall income in 2021 is expected to be similar to that achieved in 2020 at constant currency
• Expects income to return to 5% to 7% growth per annum from 2022

Chief executive Bill Winters said:

"We are weathering the health crisis and geopolitical tensions very well, our strategic transformation continues to progress and our outlook is bright. We remain strong and profitable, although returns in 2020 were clearly impacted by higher provisions, reduced economic activity and low interest rates, in each case the result of Covid-19. Looking ahead, our unique exposure to the most dynamic markets in the world puts us in a great position to benefit from the clear signs of recovery there."

ii round-up:

Headquartered in the UK, Standard Chartered (LSE:STAN) operates across 50 plus countries, primarily in Asia, Africa, the Middle East. 

Employing more than 86,000 people, the bank generates two-thirds of its income from Asia. 

Its services include corporate and institutional banking, private banking, financial markets and corporate finance. 

For a round-up of these latest results, please click here. 

ii view:

The bank’s strategic priorities include streamlining operations, embracing digitisation and investing to accelerate growth. Expenses are expected to increase slightly over 2021 as part of the digital push. Profit fell in 2020 despite reduced costs, given a combination of lower interest rates that affected income and higher pandemic related impairments.

For investors, tensions between the West and China, and with a emphasis on Hong Kong, remain central. Despite a more malleable US government, a similarly tough position regarding political freedoms in Hong Kong and trade may well continue. A return on equity of just 3% leaves management with work to do, while the headwind of ultra-low interest rates on the differential between deposits and loans looks unlikely to disappear anytime soon.

That said, and like rivals, the very worst of pandemic provisions are hopefully behind it. A return to shareholder returns via both a dividend payment and share buybacks is not to be ignored, as is strength in the balance sheet and an increase in the capital cushion to 14.4%. For now, and despite its exposure to expected long-term Asian and emerging market growth, investors looking to back the banking sector may demand firmer evidence of recovery.    

Positives: 

• Pursuing a transformation plan
• Recommenced shareholder returns

Negatives:

• Exposure to the politically troubled Hong Kong
• Expenses are likely to increase slightly over 2021

The average rating of stock market analysts:

Buy