Standard Chartered may restart ‘shareholder returns’ next year as third-quarter profit beats estimates
- Emerging markets lender will evaluate reinstating shareholder returns, such as dividends, in early 2021
- Underlying pre-tax profit was US$745 million, well above a consensus estimate of US$502 million
Standard Chartered, one of Hong Kong’s three big currency-issuing banks, said on Thursday it could begin returning capital to shareholders, including potential dividends, next year as it reported better-than-expected profit in the third quarter.
“I feel good about where Standard Chartered is six months into a global crisis. We’re profitable. We’ve got a strong capital position and are getting stronger,” Bill Winters, the Standard Chartered chief executive, said on a conference call with analysts. “Banking advances are made or not during the difficult times. I feel we are coming into this difficult time, have come into it and are going through it in very good shape.”
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On Thursday, Credit Suisse said it intended to pay a dividend and begin buying back shares as soon as January despite reporting a 38 per cent decline in its third-quarter profit.
Standard Chartered’s shares in Hong Kong fell 3.1 per cent on Thursday, ending the day at HK$37 following its results announcement.
“We don’t, as a management team and a board, have any intent on sitting unnecessarily on capital longer than we have to,” Andy Halford, the Standard Chartered chief financial officer, said on a call with journalists. “Equally, we want to make sure we have got enough to weather the next few quarters ahead of us.”
On a net basis, profit fell 83 per cent to US$123 million in the third quarter, compared with US$725 million a year ago.
Operating income, which is similar to revenue in the United States, declined 11 per cent to US$3.51 billion in the third quarter, while net interest income fell 16 per cent to US$1.62 billion.
Minus provisions, the results were 2 per cent below consensus expectations, according to Ronit Ghose, a Citigroup analyst.
“The company’s shares may get support into the [full year] results on expectation of capital return,” Ghose said in a research note on Thursday.
Halford, the Standard Chartered financial chief, said the bank continues to expect lower impairment costs for potential soured loans in the second half of the year.
In the first nine months of 2020, Standard Chartered recorded US$1.92 billion in credit impairments because of weakening business activity from the coronavirus pandemic, nearly four times what it set aside a year ago.
“The expected economic recovery next year would support asset quality improvement, although we anticipate some sectors and markets will face continuing challenges,” Halford said.
New accounting standards adopted by Standard Chartered and its rivals in 2018 require banks to recognise potential credit losses over the life of a loan and more aggressively write down loans if they have experienced a significant increase in credit risk.
Standard Chartered benefited from a 4 per cent jump in its financial markets business as market volatility ebbed from the first half of the year, and a 16 per cent gain in its wealth management business. Other product areas were weaker, with transaction banking and retail products reporting double-digit declines.
Underlying pre-tax profit in its Greater China and North Asia segment, which includes its biggest market, Hong Kong, fell 5 per cent to US$578 million in the third quarter from a year ago.
In its Hong Kong business, Standard Chartered reported an underlying pre-tax profit of US$332 million, a 27 per cent decline from US$453 million a year earlier.
Standard Chartered’s investment banking unit reported an 11 per cent decline in underlying pre-tax profit to US$525 million in the second quarter, while underlying pre-tax profit in the retail bank fell 14 per cent to US$257 million.