Fierce competition for business has put pressure on margins at Standard Chartered, which reported disappointing first quarter results yesterday.
Operating profit fell slightly from the previous year, the bank said in its interim management statement, without giving any numbers.
The results came as a shock to the market, with Standard Chartered's share price in Hong Kong falling 3.53 per cent to close at HK$193.90, after rising as much as 2.4 per cent before the bank's results were announced at noon yesterday.
In London the stock fell 6.4 per cent to £15.92 (HK$191.47) in early trading but recovered to £16.21, down 4.6 per cent, in the early afternoon.
JP Morgan immediately cut its target price for the bank by 10 per cent to HK$208 and revised its rating to "neutral" from "overweight", blaming a reduced outlook for growth.
Standard Chartered's finance director, Richard Meddings said yesterday that he expected revenue this year to grow at 8 per cent, the same as last year.
However, Steven Chan, an analyst at Citic Securities, said he thought Standard Chartered would find it challenging to achieve such a growth rate.
"The bank needs to sacrifice its margin and capital strength if it aims for such revenue growth by increasing its loans, because the influx of liquidity from quantitative easing will drive more competition among banks in the lending business," Chan said. Chan said the bank expects pretax profit to grow to US$8.2 billion this year. This would be a 19.2 per cent jump from last year.
Meddings said he expected competition among banks to be tougher because of the influx of liquidity, leading to further compression of margin, but the bank had started the second quarter well, with income last month back at trend levels.
Momentum slowed later in the quarter, Standard Chartered said in its statement, and income was slightly higher than a year earlier but partly offset by continued tightening of margins and spreads. Its Hong Kong and African operations posted double-digit growth in income, offset by weaker performance in South Korea and Singapore. Meddings said the bank saw "deteriorating asset quality" in South Korea.
Staff costs rose in the high single digits to reflect a rise in employee numbers of about 560 and wage inflation, the bank said.
Shares of rival HSBC rose 1.74 per cent to close at HK$87.70 yesterday after the bank announced first-quarter results on Monday. Morgan Stanley raised its target price for HSBC by 1 per cent to HK$89 and raised its estimate of earnings per share this year by 9 per cent, saying the bank's asset quality was improving and capital remains solid.