Hong Kong company reporting season

No interim dividend from Standard Chartered despite 93pc rise in profits

Lender posts interim pre-tax profits of US$1.919 billion, up from US$994 million in the first half of 2016

PUBLISHED : Wednesday, 02 August, 2017, 5:18pm
UPDATED : Wednesday, 02 August, 2017, 11:09pm

Standard Chartered Bank disappointed investors on Wednesday by not announcing a dividend with its 2017 interim results, despite boosting underlying pre-tax profits by 93 per cent.

The bank’s shares plunged by 7.5 per cent in London in early morning trading following the announcement, which came after the market had closed in Hong Kong.

“We suspect investors will be disappointed with a lack of quarter loan growth and lukewarm commentary on capital return,” said banking analysts at Jefferies in a note, although they did describe the figures as “a reasonable first half set of results”.

Standard Chartered posted pre-tax profits of US$1.919 billion, up from US$994 million in the first half of 2016, beating the US$1.49 billion estimate by a Thomson Reuters poll of analysts.

The better-than-expected performance was due to lower-than-expected impairments, said the Jefferies analysts who have an underperform rating on the stock.

The last dividend Standard Chartered paid was in the first half of 2015, when it offered 14.4 US cents per share. Since then it has chosen not to pay a dividend in an attempt to turn its performance around.

The bank’s board would consider at the end of the year whether it was appropriate to restart payment of dividends, Jose Vinals, its chairman, said in a statement to the Hong Kong and London stock exchanges.

“The board has decided not to declare an interim dividend on ordinary shares,” Vinals said.

“While it is encouraged by the increase in profitability in the first half of the year, the board is mindful that more clarity may emerge over the coming months regarding current regulatory uncertainties, including the capital implications of the finalisation of Basel III and the implementation of IFRS 9.”

Basel III is a regulatory framework for banks produced by the Basel Committee on Banking Supervision (BCBS). The rules were meant to be finalised by December 2016, however, at the start of this year, the BCBS announced that more time was needed to finalise post-crisis regulatory reform.

IFRS 9 is a new accounting framework for banks, which was described as a “monumental pain” by HSBC’s group finance director Iain Mackay in May.

Standard Chartered is also being investigated by regulators in a number of markets, including the SFC in Hong Kong over its role as sponsor for the IPO of China Forestry, as well as the US Department of Justice and the UK’s Financial Conduct Authority.

Benjamin Hung Pi-cheng, Standard Chartered’s chief executive greater China and north Asia acknowledged that uncertainty over the scale of any penalties that will be given to Standard Chartered was another reason for maintaining a strong capital buffer.

“We continue to work with regulators, but [any fines that may be levied] are not within our realm of control. What is in our control is to have a prudent level of capital,” he said at a media briefing in Hong Kong on Wednesday.

Unlike HSBC’s Mackay, in response to a questionif he was fed up with the delay in finalising the new rules, Hung said that he “had to remain calm”.

StanChart completes 2-year restructuring and sets sights on expansion

Hong Kong remains the largest contributor to Standard Chartered’s revenue and profit, and saw further growth in both elements in the first half.

Standard Chartered Bank Hong Kong saw underlying profit before tax rise by 22 per cent to US$662 million (HK$5.16 billion).
Standard Chartered’s mainland China operations and its embattled Korean operations both saw underlying profits also rise, by 65 per cent, and 196 per cent, respectively.

Looking forward, Hung said that he expected to see good loan growth in Hong Kong, partly because of the deleveraging campaign in mainland China.

“China is going through a deleveraging process, so the availability of bank lending is tighter than it needs to be, and that will have an effect on corporates borrowing offshore

Loan growth in Hong Kong has been strong partially because of deleveraging activities in China, and so Hong Kong becomes a good source of access,” he said.

On Monday, rival HSBC posted a rise in pre-tax profits of 5 per cent, and said it would return more capital to investors by means of a share buyback.