Standard Chartered resumes dividend, buy backs as it reports a worse-than-expected fourth-quarter loss

Standard Chartered to restart dividend, undertake US$254 million share buy-back programme
Fourth quarter pre-tax loss was US$449 million, below consensus estimate of US$215 million

Banking & finance

Chad Bray

Published: 12:46pm, 25 Feb 2021

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Standard Chartered said on Thursday that it would restart its dividend and unveiled a US$254 million share buy-back programme as it reported a worse-than-expected loss in the fourth quarter.

In the fourth quarter, Standard Chartered reported a pre-tax loss of US$449 million, below a consensus estimate of a US$215 million pre-tax loss by 14 analysts polled by the bank. That compared with a pre-tax profit of US$194 million a year earlier.

On a net basis, the bank reported a fourth-quarter loss of US$610 million, compared with a loss of US$126 million a year ago. The fourth-quarter results included restructuring charges of US$248 million and an annual bank levy of US$331 million charged by the United Kingdom government.

Standard Chartered said it would make a dividend payout of 9 US cents a share for full-year 2020.

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“We are weathering the health crisis and geopolitical tensions very well. We remain strong and profitable, although clearly impacted by credit challenges and low interest rates,” Bill Winters, the Standard Chartered CEO, said in a stock exchange filing. “Our strategic transformation continues to progress well, and our outlook is bright.”

Like Hong Kong rival HSBC, Standard Chartered cancelled its final dividend payment for 2019 and suspended interim payments and buy-backs in 2020 at the request of its chief regulator in the UK last April. The emerging markets-focused bank is based in London, but generates much of its revenue in Asia.

Financial institutions have been eager to begin returning capital to shareholders as fears have eased about the economic fallout from the coronavirus pandemic and optimism has grown about the pace of the recovery, particularly in Asia.

The lender paid an interim dividend of 7 US cents a share in 2019 before cancelling its final dividend payment of 20 US cents a share for the year in April 2020 after a request by the Prudential Regulation Authority (PRA), an arm of the Bank of England.

Standard Chartered and HSBC both saw their shares hit hard by investors in Hong Kong after the dividend cancellation, but have seen their shares recover since the PRA said in December that it was comfortable with UK-based lenders restarting investor payouts.

Both banks saw their shares jump more than 7 per cent last week in Hong Kong on investor anticipation of the dividend restart and growing optimism about the pace of the economic recovery from the coronavirus pandemic.

However, they gave back some of those gains after Hong Kong’s government announced plans to increase the stamp duty on stock trades as part of the latest budget.

Standard Chartered’s shares declined 1.9 per cent to close at HK$54.10 in Hong Kong on Thursday.

Standard Chartered Chief Executive Bill Winters speaks during a press conference in Hong Kong in November 2020. Photo: Xiaomei Chen

In the fourth quarter, operating income, a measurement similar to revenue fell 12.9 per cent to US$3.15 billion. Operating expenses, which include the bank levy, rose 1.6 per cent to US$3.07 billion in the quarter.

It also recorded credit impairments for potentially soured loans of US$391 million in the fourth quarter, with its credit impairments reaching US$2.3 billion for the full year.

Banks globally were forced to record tens of billions of dollars of impairments for potential loan losses as the coronavirus pandemic weighed on economic growth in 2020.

Standard Chartered warned it expected its overall income in 2021 to be “similar” to last year, given the historically low interest rate environment as central banks try to stimulate economies globally.

“Our performance in the opening weeks of this year gives us the confidence that we are on the right track with strong performances in our less interest rate-sensitive financial markets and wealth management businesses,” the bank said.

Underlying pre-tax profit in its Greater China and North Asia business segment declined 34 per cent to US$323 million in the fourth quarter. The segment accounts for about 81 per cent of the bank’s pre-tax profit.

In its corporate and institutional banking, underlying pre-tax profit fell by half to US$184 million in the fourth quarter. Its commercial bank reported a 72 per cent drop in underlying pre-tax profit to US$13 million, while its private bank reported a worse underlying pre-tax loss of US$11 million from US$3 million a year ago.

Winters also pushed back at suggestions his time at the lender could be drawing to a close, following media reports the bank has identified candidates as potential successors – both internally and externally.

“The job is not yet done. I think we’ve had a pretty material setback in the context of [Covid-19],” Winters said. “I’m quite keen to finish the job. I have no plans to leave.”

Standard Chartered is adopting more flexible working arrangements and is not expected to renew leases on eight floors in its main office in Hong Kong. Photo: Bloomberg

The lender also said it is likely to incur further restructuring charges of about US$500 million in the next few years, primarily related to people and property actions.

The lender resumed what is expected to be several hundred job cuts recently and is looking for further ways to shed costs. It also is seeking to “reskill” workers whose jobs are changed by automation as it seeks to enhance its digital capabilities.

In November, Standard Chartered said it would allow employees in nine markets, including Hong Kong, to apply for formal flexible working arrangements beginning this year as it seeks to capitalise on its success of work-from-home arrangements during the pandemic. That could include splitting time between Standard Chartered’s offices, at home or co-working facilities closer to their residences.

Local media also reported in February that it did not intend to renew its leases on eight floors in its main office in Hong Kong. The company employs about 6,000 people in Hong Kong, its largest market.

Andy Halford, the bank’s chief financial officer, said he expected the bank could reduce its office footprint by as much as a third in about four years’ time.

“Our sense is that over a period there should be quite a significant opportunity to reduce the space that we actually occupy ourselves,” Halford said. “The cost benefit on that will depend on leases, lease break clauses, renewals. There may be some cost involved in accelerating those processes.

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