Standard Chartered Q3 results break records in important areas

Standard Chartered (LSE:STAN) has rounded off the UK bank sector reporting season in some style, with the Wealth business on which it places so much strategic store enjoying a record quarter.

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Net profit of $1.03 billion was 10% higher than the previous year, breezing past expectations of $802 million, while underlying pre-tax profit rose by a similar percentage to $2 billion. Underneath these numbers was a 5% increase in operating income to $5.1 billion, with non-interest income rising by 12% to $2.41 billion. Lower interest rates and some margin compression took some of the shine off the numbers, with Net Interest Income falling by 1.2% to $2.74 and Net Interest Margin reported at 1.94% as against 2.07% previously.

Even so, the key metrics revealed a bank which remains in good shape, with the capital cushion, or CET1 ratio of 14.2%, stable and comfortably in excess of the group’s target range of between 13% and 14%. The cost/income ratio improved to 57.4% against a previous 57.9%, while the Return on Tangible Equity (ROTE) of 13.4% from 10.8% was boosted by improved overall profitability. Impairments of $195 million were lower and made on a prudent basis, largely relating to the Wealth and Retail business at $107 million, whereas the previous fallout from the China property exposure has already seen much of the provision having been taken.

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Perhaps the particular jewel in the crown in these numbers was the Wealth Solutions business, which saw income growth of 27% to $890 million, with net new money of $13 billion through 67,000 new clients. The quarter represented a record and is proving to be a vindication of the group’s strategy. Indeed, Standard previously stated that it was now aiming for $200 billion of net new money in Wealth Solutions over the next five years, and if achieved this stretching target would clearly represent the next level of growth.

Despite the headwinds of its exposure to China and the real estate sector in particular, where its presence has been something of a double-edged sword, the group’s general exposure to Asia has offset any immediate concerns. Indeed, Standard previously highlighted that there were particular pockets of optimism throughout the region, such as the movement of capital away from oil in the Middle East and the inexorable economic growth in India, while the Wealth business is clearly reaping the rewards of targeting the affluent sector in the relevant regions.

The Global Banking unit was another star performer, itself also hitting a new record for the quarter with 23% income growth to $588 million, including a 33% spike in the Capital Markets & Advisory business where increased Merger & Acquisition income boosted revenues. Elsewhere, loans and deposits increased by 1% and 2% respectively quarter on quarter, and the overall strength of the group performance led to some upgrades to guidance.

This was reflected by a statement of management confidence in prospects, where outlook guidance for operating income growth was moved to the upper part of a range of between 5% and 7%, previously having been at the lower end. In addition, a targeted 13% ROTE was achieved this year, one year ahead of plan, with the possibility of further improvement. At the same time, Standard reiterated its commitment to return $8 billion to shareholders between 2024 and 2026, possibly skewed towards buybacks since a dividend yield of 2% perhaps reflects less importance to the group.

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After some years in the doldrums having once been the darling of the UK banking sector, Standard finds itself in the midst of a revival. Prior to this update, the shares had risen by 73% over the last year, as compared to a rise of 20% for the wider FTSE100, and by 148% over the last two years.

Shareholder returns, easing tensions between the US and China and a sector rerating have all played their part. The challenge for the group now is to maintain the momentum and capitalise on the significant opportunities which the Asian region could provide over the medium to longer term. With such a stellar price run, the shares do not look obviously cheap and Standard will need to deliver on its projections for the next leg of growth and to build on a market consensus which currently stands at a hold.