Standard Chartered revival continues with record first-quarter results

A branch of Standard Chartered in Hong Kong. Photo: Sebastian Ng/SOPA Images/LightRocket via Getty Images.

Standard Chartered (LSE:STAN) has had a record quarter on a number of fronts, eclipsing other results in the sector so far by a comfortable margin.

• Our Services: SIPP Account | Stocks & Shares ISA | See all Investment Accounts

Overall operating income, both Wealth and Global Banking income, and pre-tax profit for the quarter all surged higher to new record levels for the group. There is little to mar the overall figures, except for a slight decline in Net Interest Margin from 2.12% to 2.05% due to falling interest rates and margin compression, and a $296 million charge, which was up by $79 million. Within the latter number, there was a $190 million credit impairment charge on the potential impact of the Middle East conflict although, as has been widely seen across the European banking sector, the number represents a prudent provision rather than any actual underlying deterioration in credit.

These are relatively minor distractions given the strength of this performance, however. Operating income rose by 9% to $5.9 billion, comprising Net Interest Income (NII) growth of 1% to $2.9 billion, and non-interest income growth of 16% to $3 billion. The improvement led to a pre-tax profit jump of 17% to $2.45 billion, comfortably ahead of the $2.14 billion which had been estimated. Net profit of $1.66 billion was 22% higher and breezed past expectations of $1.32 billion.

• Lloyds Bank Q1 profits boom and targets maintained
• Prepare for UK bank sector dividend windfall
• Barclays beats Q1 forecasts despite MFS hit 

The Wealth Solutions business is fast becoming a jewel in the crown for Standard. Operating income growth of 32% to $1.04 billion included affluent net new money inflows of $18 billion. The quarter represented a record and is proving to be a vindication of the group’s strategy, with heavy demand for its investment products driving the growth. 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.

The Global Banking unit was another star performer, with 19% operating income growth to $663 million, including a 59% spike in the Capital Markets & Advisory business where increased activity and bond issuance fees boosted revenues. Elsewhere, both loans and deposits for the group overall increased by 3% compared to the corresponding period. 

• The UK stocks we bought in the market sell-off
• Seraphim Space’s share issue: all you need to know
• The types of funds and shares to shield against inflation

The key metrics also stood firm, with a capital cushion, or CET1 ratio of 13.4%, a Return on Tangible Equity (ROTE) of 17.4% a significant improvement from the 14.8% of the corresponding period, and a cost/income ratio which fell from 56.6% to 53.2%, leading to a statement of management confidence in prospects. 

Previous outlook guidance was reiterated, with the group aiming for operating income growth at the lower part of a range of between 5% and 7% in the coming year, ROTE in excess of 12% and NII broadly flat. Behind the numbers, a previously announced share buyback programme of $1.5 billion is ongoing, amid the group’s commitment to return $8 billion to shareholders between 2024 and 2026.

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. 

It has been a long slog for Standard although the share price has finally recaptured its 2010 highs. 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. 

• Broad commodity exposure vs silver and gold funds: which is best?
• Trading Strategies: are Rio Tinto shares worth buying now?
• Sign up to our free newsletter for investment ideas, latest news and award-winning analysis

Prior to this well-received update, the shares had risen by 63% over the last year, as compared to a rise of 20% for the wider FTSE 100 index, and by 137% over the last two years. Shareholder returns, cost management, growth in the Wealth business 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. The group will provide a strategic update next month. 

After 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, although in the meantime this update could prompt an upgrade to a market consensus which currently stands at a hold, albeit a strong one.