Standard Chartered

StanChart warning of slow growth rattles investors

UK lender's stock plunges in London trading after update cites poor Korea performance and flags operating loss of up to US$200 million

PUBLISHED : Thursday, 05 December, 2013, 6:00am
UPDATED : Thursday, 05 December, 2013, 6:00am

Standard Chartered has warned of muted income growth this year due to the poor performance of its South Korean consumer banking business, with an operating loss of up to US$200 million.

Despite a worse-than expected fourth-quarter performance, the bank's management gave a positive outlook for its depressed margins, but some analysts questioned how the bank could offset the potential rise in losses.

"The uncertainty of the geographic performance and margin outlook puts pressure on its share price," Maybank Kim Eng Securities analyst Steven Chan said. He assigned a "sell" on the bank's shares and a price target of HK$172.20.

The stock plunged 6.8 per cent to 1,333.5 pence in early London trading after the pre-close trading update was announced. It edged down 0.65 per cent in Hong Kong before the announcement to close at HK$182.60.

The Asia-focused British lender's business had been worsening in the fourth quarter from the previous term amid a decline in its financial markets arm, its finance director Richard Meddings said yesterday.

The bank said the income for the full year was "broadly flat" with last year in the statement, without giving specific numbers. The impairment loss would be larger in the second half than the first.

Standard Chartered said its costs increased at a low single-digit rate this year. It expected the cost of the bank levy in Britain to be around US$250 million, up from US$174 million in 2012.

The adequate supply of liquidity from the quantitative easing monetary policy is causing keener competition among banks, pushing down lending profitability, or net interest margin. The bank claimed its margin also declined slightly from last year.

"[Yesterday's] news is poor, but the outlook, underpinned by a strong pipeline and greater margin stability, appears robust," Investec analyst Ian Gordon wrote in a report. He reaffirmed a "buy" rating and a price target of 1,900 pence. He said he expected the bank's outlook for next year to be positive, driven by a sharp improvement in the wholesale banking arm.

Income in Hong Kong, Africa and India would each report a growth rate in the double digits to help offset weaker performance areas, especially South Korea, where income would decline by a double-digit percentage, the bank said.

Despite the dim outlook for consumer banking in South Korea, Meddings said the group had no plan to exit the country but would sell down "two, three or four" small businesses there.