ii view: Standard Chartered shares tumble

Pursuing strategic goals to improve performance and leaning on Asian export growth. We assess prospects.

Third-quarter results to 30 September

• Adjusted group income up 5% to $3.8 billion
• Adjusted pre-tax profit before tax up 44% to $1.1
• Capital cushion or CET1 of 14.6%, up from 14.1% in Q2 

Chief executive Bill Winters said:

“We delivered a return to top-line growth in the third quarter and achieved further progress against our strategic priorities, with strong performance in our Financial Markets and Trade businesses and ongoing positive momentum in Wealth Management. 

“We continue to transform how we serve our customers in the world’s most dynamic markets through innovation, partnerships and new ventures. Last week, we were also pleased to deliver on our sustainability commitment to set out a clear path to achieve net zero by 2050.”

ii round-up:

Emerging markets focused bank Standard Chartered (LSE:STAN) today reported a 44% increase in underlying profit to $1.1 billion and increase in currency adjusted group income of 5% to $3.8 billion. 

Bad debt or credit impairments, although down year-over-year, exceeded forecasts, hindered by a provision taken in relation to aviation.   

Standard Chartered shares fell by more than 8% in UK trading, leaving them up by around 10% since pandemic induced market lows back in March 2020. Shares for fellow Asia focused HSBC (LSE:HSBA) are down by close to 10% in that time, but shares for UK focused NatWest (LSE:NWG) and Lloyds (LSE:LLOY) are each up by over 90% and 60% respectively. 

A 4% revenue increase for Standard’s Financial Markets business helped fuel the rise in overall income, with costs or expenses remaining flat from the previous second quarter, although were up year-over-year. 

Increased fee income helped offset the higher-than-expected credit provisions, leaving the jump in profit broadly in line with analysts’ expectations.

Accompanying management outlook comments, although admitting to some concerns around supply chain problems, proved broadly favourable on balance, given confidence in Asian export growth and an ongoing focus on cost control. However, adjusted full-year income is expected to be similar to last year.

ii view:

Headquartered in the UK, Standard Chartered operates across 50-plus countries, primarily in Asia, Africa, the Middle East. Employing more than 80,000 people, its customers and profits are concentrated in the Asia Pacific region. Its services include corporate and institutional banking, private banking, financial markets, and corporate finance. Its strategic priorities are focused on streamlining operations, embracing digitisation, and investing to accelerate growth. 

For investors, lagging vaccination rates in many of its emerging market locations and increased geopolitical tensions between China and the West continue to cast a shadow. A series of strategic initiatives are also focused on improving its return on shareholder equity.

Like rivals, the very worst of pandemic impairments are hopefully behind it, and a strong balance sheet has allowed shareholder returns to begin again. The bank remains a work in progress, but it is making advances, although not in share price terms today. One for the buy and hold investor.

Positives: 

• Pursuing a transformation plan
• Restarted shareholder returns

Negatives:

• Exposure to the politically volatile Hong Kong
• Expenses up year-over-year

The average rating of stock market analysts:

Buy