StanChart flags risk to profit goal from slowing growth, lower rates
HONG KONG/LONDON – Standard Chartered flagged risks on Wednesday to its key returns target citing slowing global economic growth, trade tensions and protests in its biggest market of Hong Kong, after posting a forecast-beating 16% growth in quarterly profit.
The London-headquartered bank had set a goal to double its returns and dividends in three years by cutting $700 million in costs and boosting income, as part of a broader, second three-year turnaround plan.
The first of those in 2015-2018 under Chief Executive Bill Winters focused on repairing a balance sheet ravaged by ill-advised lending in Asia, improving the bank’s internal controls, reducing costs, and shedding unwanted businesses.
StanChart’s pretax profit for the three months ended Sept. 30 rose to $1.24 billion from $1.07 billion in the same period a year ago, above the $1 billion average of analysts’ forecasts compiled by the bank.
By flagging “growing headwinds” to earnings on Wednesday, StanChart joined its bigger rival HSBC in painting a darker outlook due to the Sino-U.S. trade war, an easing monetary policy cycle and unrest in Hong Kong.
StanChart reported a jump of 1.6 percentage points in return on tangible equity to 8.9% in the third quarter, but for the nine-month period the key profit metric was at 8.6% compared to the more than 10% goal it has set itself by 2021.
“We are saying 10% still remains the target…however being realistic since we put that target out there in February the rate outlook is towards the negative, and geopolitical events are still circling around,” StanChart Chief Financial Officer Andy Halford told reporters.
“We are saying ‘this will be a bit more difficult’, but it doesn’t stop us trying to get to that 10%,” he said. “We are very focused on getting to that number as we see it as an important one psychologically.”
Winters said on Wednesday the execution of his new strategy remained a priority to drive profitability.
HSBC abandoned on Monday its own return target of greater than 11% by 2020, blaming a worsening revenue outlook and tougher than expected market conditions.
StanChart shares rose 2.5% in early London trading, the best performer in the benchmark FTSE 100 index, and following similar gains in its Hong Kong shares earlier. Before Wednesday, London shares of the bank had gained 14% so far this year compared to a 9% drop in HSBC’s shares.
Five months of political turmoil in Hong Kong are set to weigh on HSBC and StanChart credit growth and asset quality in the near to medium term, people with knowledge of the matter said last week.
StanChart makes the bulk of its revenue in Asia, and the Chinese-ruled city brought in a third of its income in the first half of this year, as per the bank’s financial filings.
The bank’s income grew 2% in Hong Kong in the third quarter, Halford said.
“We are very focused, as you would expect, on the credit side of things just making sure that the exposures there are behaving,” Halford said, adding the “quantum of lending” in the July-September period moderated compared to the preceding quarter.
StanChart said it expects costs in the second half of the year to be “slightly higher” than the first half, but for the full year figure to grow below the rate of inflation.
The bank’s corporate and institutional banking income grew 13% during the quarter, while private banking rose 14%, it said, adding its core capital ratio remained within the 13-14% target range at 13.5%.
(Content & Photos Syndicated Via Reuters)
(Reporting by Sumeet Chatterjee in Hong Kong and Lawrence White in London; Additional reporting by Alun John; Editing by Muralikumar Anantharaman)