StanChart Profit Beats Estimates, Flags Strong Outlook on Rising Rates

Standard Chartered reported 6 per cent increase in pre-tax profits in the first quarter of 2022 as growth in trading income and transaction banking helped offset a volatile environment in its main Asian markets.

The UK-based lender said on Thursday that statutory profits before tax were $1.5bn for the first three months of the year, which exceeded analyst expectations of just over $1bn, and sent its shares up more than 14 per cent in Hong Kong.

StanChart’s results outperformed those of its larger rival HSBC, which this week revealed its profits fell more than a quarter in the first three months of the year as a result of the war in Ukraine and slowing growth in its core Asia markets.

Bill Winters, StanChart’s chief executive, said the bank’s performance was “strong despite the volatile macro environment”. He added: “We are on track to deliver 10 per cent return on tangible equity by 2024, if not earlier.”

Andy Halford, chief financial officer, said the bank’s exposure to Russia was “minimal” but that volatility as a result of the conflict had led to a surge in corporate client activity hedging against interest rates and foreign exchange movement.

“We have managed to benefit a lot on the upside without the downside, which explains our relative outperformance,” Halford said.

The emerging markets-focused bank reported underlying operating income of $4.3bn, which beat analyst estimates of $3.8bn. Financial markets income rose 32 per cent, boosted by its commodity business, which benefited from rising energy prices.

However, wealth management income dropped 18 per cent, in part because of the impact of Covid-19 restrictions in its largest market Hong Kong, as well as in mainland China, where strict pandemic policies led to branch closures.

Asia profits dropped 26 per cent owing to larger credit impairments of $227mn as a result of the bank’s exposure to a slowdown in China’s property market and a sovereign rating downgrade of Sri Lanka.

“Given the very strong capital position, it is highly likely that [the bank] can announce further buyback along with 2Q22 earnings,” said Citibank analysts. StanChart said this year that it planned to return $5bn to investors in the next two years and launched a $750mn stock buyback.

StanChart is exiting seven countries across Africa and the Middle East to focus on faster-growing markets. The lender is also betting on China, where it will invest $300mn to expand, particularly in wealth management.

In the short term, analysts expect StanChart’s China growth plans curtailed by Beijing’s restrictive Covid policies, including the lockdown of financial hub Shanghai.

Halford said that “clearly there is a lot of market disturbance but . . . it does not change our belief in doubling profits in China”.

In February, StanChart disclosed that its total exposure to China was $66bn, including $4bn to commercial real estate. Almost $1bn of the property exposure was to the mainland and $3bn to Hong Kong.

The lender aims to cut “structural” costs by $1.3bn and slash another $22bn of low-returning risk-weighted assets from the investment bank by 2024. Costs have been under the spotlight at StanChart, with Winters last year conducting what was described as a “bottoms-up” review of the business.

Under Winters, who has been at the helm for seven years, the bank has struggled to match the growth rates and profitability of local peers across its more than 50 markets in Asia, Africa and the Middle East. StanChart’s share price remains around half the level it was when Winters became chief executive in mid-2015.

April 30, 2022