Standard Chartered braced for more gloom
Standard Chartered will find peers to commiserate with this year as their financial markets business wanes, analysts said.
But, they also said, its departure from retail business set it apart from other global players and opened it up to unwanted exposure to slowing Asian economies.
Standard Chartered said on Thursday its operating profit for the first half could fall by up to 20 per cent, dragged down by poor financial markets business. That slump could see its full-year profit fall below last year's.
During the past five years, the British bank has dug deep into financial markets business such as rates and foreign exchange, which have been showing structural and cyclical weakness this year. At the same time, its core business at home is struggling.
"The unfortunate thing for Standard Chartered is that financial markets business is suffering at the same time their margins are being squeezed," said Christopher Wheeler, an analyst at Mediobanca Securities.
Many of Standard Chartered's global peers are feeling a similar sting from the end of quantitative easing in the United States, as well as from investigations into the global banking sector's foreign exchange activities.
In 2012, the bank reached a US$667 million settlement with the US government for breaking sanctions. That was followed by a series of other high-profile regulatory cases, such as HSBC Holdings' record-breaking US$1.9 billion settlement for inadequate compliance.
On Thursday, New York's attorney general announced a lawsuit against British bank Barclays for allegedly favouring high-frequency traders.
"The market has definitely become less buoyant" as a result of the regulatory scrutiny, Wheeler said.
Barclays shares dropped to a 20-month low on Thursday's news while Standard Chartered fell by more than 5 per cent. HSBC, a bank often compared to Standard Chartered in Asia, lost more than 1 per cent as its peers appeared to struggle.
But Standard Chartered's deeper pangs in financial markets may not be shared with other global banks that have retained stronger retail businesses.
Chirantan Barua, a London-based analyst at Sanford C. Bernstein, said much of Standard Chartered's wholesale banking business had been based on infrastructure finance in Asia, especially in markets such as China and India.
As the mainland Chinese economy cooled and local debt soared, its demand for new bridges and roads had waned. The slowdown was hurting Standard Chartered's wholesale banking business, which represented up to 80 per cent of its business, Barua said.
"One thing to remember is that this bank is no longer a retail bank," Barua said. "So they're going to be much more impacted."