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Abu Dhabi, UAESunday 24 June 2018

Standard Chartered profits soar but lender not out of the woods yet

Income disappoints, showing the Mena and Asia-focused bank still has hurdles to overcome as it tries to meet targets after lengthy restructuring

Standard Chartered signage in the Central district of Hong Kong. The lender posted a sharp rsie in profits for the first quarter. Isaac Lawrence/AFP
Standard Chartered signage in the Central district of Hong Kong. The lender posted a sharp rsie in profits for the first quarter. Isaac Lawrence/AFP

Standard Chartered beat expectations with a 20 per cent rise in first quarter pre-tax profit on Wednesday, but disappointing income showed the long road ahead for its returns to meet targets after years of restructuring.

Pretax profit for StanChart, which focuses on Asia, Africa and the Middle East, rose to $1.26 billion in the quarter to the end of March, from $1.05bn in the same period a year ago, helped by improvements in asset quality.

However, revenues - closely watched by investors who want to see growth driven by income rather than lower impairments - fell short of market expectations at $3.9bn, despite being the bank's best since the second quarter of 2015.

This underscores the challenge for StanChart in meeting its already modest targets and helped send the bank's London-listed shares down 1.6 per cent by 09.10 GMT, reversing earlier gains.

"Overall the key disappointment will be that the strong income start flagged at the full year hasn't persisted," said Richard Smith, analyst at KBW in London.

Analysts at Barclays and UBS also noted that it would be a stretch for the bank to meet their forecasts for income for the rest of the year, and that it hadn't reaffirmed a target to keep costs below 2015 levels.

Wednesday's profit jump and the return to dividends StanChart announced in February are two early fruits of the sweeping restructuring implemented by chief executive Bill Winters when he joined the bank in 2015.

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But this has also had consequences, pushing the bank's return on equity, a key profitability metric, into negative territory. StanChart said in February it will restore that to 8 per cent in the medium term, but has not announced the timetable for achieving the goal.

Hitting the target will involve improving income across all of the bank's main business lines, with the first quarter showing mixed results.

While income for its private banking business climbed 23 per cent from the same first-quarter period a year ago, albeit from a low base, income in the key financial markets trading business rose only 2 per cent.

That compares with record profits for the quarter posted by US investment banks, which reaped bumper trading profits in the first two months of the year as investors reacted to volatility across stock, bond, currency and commodity markets.

StanChart posted an annualised return on equity of 7.6 per cent in the March quarter, compared to 6.3 per cent in the first quarter of 2017.

"There are no shortcuts but we are gathering momentum and gaining in confidence," finance director Andy Halford said on Wednesday.

StanChart did show continued signs of improving its balance of bad loans, with net impairment on financial assets in the quarter 29 per cent lower than in the previous period.