StanChart buoyed by core business
US$300m write-down not enough to stop pre-tax profit from rising 24.6pc
Standard Chartered said yesterday its pre-tax profit could rise at least 24.6 per cent this year despite a combined hit of about US$300 million from three items, including a write-down in a structured investment vehicle (SIV).
Richard Meddings, the bank's group finance director, said in a conference call that the bank was 'broadly comfortable' in achieving an average analysts' estimate of US$3.96 billion. The earnings, compared with a pre-tax profit of US$3.178 billion a year ago, are up due to the strong performance of core businesses which balances the impact of several items that will reduce income.
'It's a tale of two worlds. There's a lot of challenges in OECD countries in the west and therefore nervousness,' he said. 'But in Asia, the Middle East and Africa, there is strong liquidity, economic growth and increasing self-confidence.'
He added that wholesale banking in particular had an excellent year with double-digit income growth, while consumer banking had maintained the momentum seen in the first six months.
The London-based lender said yesterday it took a write-down of US$46 million on US$1.68 billion in assets brought to its balance sheet by Whistlejacket, an SIV managed by the bank.
SIVs are complex financial products, often managed by banks, which buy long-term assets, such as bonds, and financing them by issuing short-term debt, such as commercial paper. They make money on fees and on the interest spread because long-term debt generally carries higher interest rates than short-term debt. However, SIVs constantly need to refinance the short-term debt, and the subprime lending crisis has left investors nervous, making it difficult to sell commercial paper. That often forces banks to step in.
The total assets of Whistlejacket have fallen to US$10.8 billion at the end of November from US$18.2 billion at the end of June.
The bank said the impact of the write-down on its tier one capital ratio was less than 0.1 per cent.
'It is highly likely that the group will undertake a further 'vertical' slice [of Whistlejacket] which will be effected before the end of the year,' Mr Meddings said.
'Standard Chartered may face an additional write down if the market deteriorates further,' said William Wong Kwok-wai, an analyst at BOCI Research. He said the bank's move was positive since it could help clear up uncertainty regarding its SIV investment.
Mr Meddings said he was confident the temporary write-down from the SIV would flow back through income over the next 3 1/2 years - the average life of the assets - because the assets were of a very high quality.
Mr Wong said BOCI planned to revise the bank's earnings forecast downward for this year but would maintain its 'outperform' rating since the specific items were one-off events.
Standard Chartered said the accounting changes and the price movement on hedges in South Korea would lead to a negative impact on its year-to-date income of US$133 million at the end of November, compared with US$23 million at the end of June.