StanChart hit by poor sentiment for bank sector
Standard Chartered Bank will unveil its interim earnings this week, against a backdrop of rising development costs in Asia and sluggish trading results.
In a pre-close trading statement on June 28, group chief executive Peter Sands flagged what he called 'another strong first half' with cost growth 'broadly in line' with income growth for the first six months of 2011.
But analysts believe the results could show that the lender's 'cost income jaws' - the gap between the growth in revenue and growth in costs could be negative, despite lower headcount levels compared to 2010.
Shares of the bank, which is headquartered in London, have lost 4.22 per cent since May as investors worried about the impact of higher costs on earnings. The stock closed on Friday at HK$199.40, down 1.29 per cent.
Analysts attributed the weak share prices to the overwhelmingly poor sentiment for the whole banking sector as a result of the euro-zone debt crisis rather than the outlook for Standard Chartered's earnings.
Stefan Bongardt, an analyst with Frankfurt-based Independent Research, believed StanChart's development costs in Asian markets might be hard to sustain and was likely to be a concern for investors. It was speculated earlier this year that Standard Chartered would have to sell its Korean unit, SC First Bank Korea, following lacklustre profit growth.
The group, which last year launched a new branding slogan - 'Here for good' - has declined to comment on speculation that it plans to sell its Korean assets.
Analysts at CCB International, the investment banking arm of China Construction Bank, said Standard Chartered shares would not rebound unless the bank's management was able to slow cost increases and improve the revenue outlook for its wholesale banking division.
The bank said last month it expected income from wholesale banking in the first half of this year to post 'good single digit growth' compared with the first half of 2010 and flagged growth in certain trading revenues such as foreign exchange.
Analysts believe overall sluggish trading in equities and fixed income and intense competition from other banks could affect Standard Chartered's overall trading revenue.
The results are expected to show there was healthy growth in loans bringing with it the risk that impairments could go up if the global economic recovery falters.
The percentage of Standard Chartered's income and profit earned in Asia, Africa and the Middle East. It operates in over 70 countries