Standard Chartered

Hard times at StanChart raise fears for rivals

Analysts say HSBC's wider geographic spreadto offset weakness in emerging markets

PUBLISHED : Tuesday, 10 December, 2013, 2:56am
UPDATED : Tuesday, 10 December, 2013, 2:47pm

HSBC could report a tough fourth quarter, going by rival Standard Chartered's travails.

HSBC's global banking and markets business, the investment banking arm regarded as its main growth driver, is likely to experience what Standard Chartered is going through in the quarter.

Standard Chartered recently warned of slower income growth this year, weighed down mainly by its financial markets business.

However, the impact on the more geographically diversified HSBC is expected to be less significant. Recovery in the bank's North American business had helped offset other adverse impacts, analysts said.

"Standard Chartered's main area of the fourth-quarter revenue weakness was specific to its financial markets - primarily the rates - business," Investec analyst Ian Gordon said.

Corporate hedging activities such as interest rate and foreign exchange swaps are major areas of the financial markets business.

Standard Chartered's warning of slow growth had set off alarm bells among its British rivals, Gordon said.

Despite the low expectations of recovery in HSBC's global banking and markets unit in the fourth quarter, he said the impact would be "proportionately less significant for HSBC".

Financial market weakness saw Standard Chartered's single digit income growth in the first nine months flattening for the whole year, which may end its dream run of 11 years of profits.

Standard Chartered has a heavy presence in Asia, Africa and the Middle East while HSBC's operation is more global, with Hong Kong and the rest of the Asia-Pacific contributing two-thirds of its pre-tax profit in the first nine months of this year.

Nomura analyst Scott Sheridan said HSBC was more exposed to developed markets than Standard Chartered, making its performance more stable at a time when many emerging markets were experiencing capital outflows amid tapering fears.

Standard Chartered is still bleeding from its South Korean business and said it could report an operating loss of up to US$200 million at the unit this year.

BNP Paribas analyst Dominic Chan agreed HSBC is in a better position because of its geographic spread. "The recovery of the US and Europe will improve credit costs and lower provisions in the second half," he said.