Standard Chartered first-half profits plummet 20pc
Second half seen as better though full year still expected to fall below 2013, dragged down by softness in foreign exchange and rates business
Embattled Standard Chartered chief executive Peter Sands pledged the bank will perform better in the second half of 2014 after its interim earnings report showed pre-tax profits tumbling 20 per cent to US$3.3 billion in the first half, in line with what investors had expected after a surprise profit warning in late June.
"Our performance in the first half of this year is clearly disappointing. It is not what we strive for and not what our investors expect," Sands said yesterday in the bank's earnings report.
Profits this year would fall below those in 2013, the bank's new finance director Andy Halford said at a conference for investors in London yesterday, although he noted that profits in the second half would be higher than in the same period last year.
Standard Chartered and HSBC Holdings, which reported a 12 per cent year-on-year decline in profits before tax on Monday, have emphasised the importance of higher interest rates in the US and the positive effects that would have on financial markets businesses, Jim Antos, an analyst at Mizuho Securities Asia, told the South China Morning Post.
"The managements [at HSBC and StanChart] are really dependent on something in the environment changing, not something they can change themselves," Antos said. "How discouraging is that?"
Standard Chartered's profits attributable to shareholders increased by 8 per cent during the first six months of the year to US$2.31 billion. The bank's declared interim dividend remained flat at 28.8 US cents per share.
As projected in June, financial markets income fell by US$432 million, or about 20 per cent, with the greatest reduction in income from the bank's foreign exchange and rates businesses.
Foreign exchange income fell by 24 per cent and income from rates business fell 33 per cent in the first half. Korea accounted for a US$264 million loss year on year.
Standard Chartered's exposure to commodities financing fraud in the mainland port city of Qingdao has been more clearly revealed since June. Impairments from China commodities were US$175 million among US$846 million in loan impairments, a 16 per cent year-on-year increase.
"It probably did take a bit more out of [impairments] than people were expecting," said Christopher Wheeler, an analyst at Mediobanca in London.
The bank said on July 14 it was suing the owner of a Qingdao metals trading company for US$35.6 million, revealing that its exposure to the scandal was greater than originally expected.
Standard Chartered's June 26 profit warning stunned investors at the time and sent its shares tumbling an initial 5 per cent. Yesterday they were trading down more than 12 per cent since the beginning of the year.
In late July, the Financial Times reported that shareholders were calling for the board to come up with a succession plan for Sands, who became chief executive in 2006. The bank denied the claims.
At the time, analysts told the Post that it would be difficult for Sands to change his Asia strategy because that strategy had only recently been announced. Sands pushed aggressively into Asian financial markets after the 2008-09 global financial crisis. The bank makes about three-quarters of its profit in Asia.
Like HSBC, Standard Chartered has also been hit with massive compliance costs in the US. New York state's financial regulator is preparing legal action against the bank for inadequate protection against money laundering, The New York Times reported on Tuesday.