Hong Kong company reporting season

Standard Chartered’s first-half profit jumps 31pc as turnaround under new CEO pays off

The bank said that it had double-digit pre-tax profit gains in its corporate and institutional business, as well as in retail banking

PUBLISHED : Tuesday, 31 July, 2018, 1:27pm
UPDATED : Tuesday, 31 July, 2018, 10:17pm

Standard Chartered said that ongoing trade tensions between the United States and China had the potential to cut into its revenue, but the bank had not seen “any impact at all” at this point as it reported upbeat first-half results on Tuesday.

The lender, which is based in London but generates much of its revenue in Asia, said that its profit rose 31 per cent as its turnaround continues under Chief Executive William T. Winters.

At a press conference in Hong Kong, José Viñals, Standard Chartered’s chairman, said that the bank estimates that the direct impact of the trade dispute on its revenue would potentially be about 1 per cent. If the trade tensions spread to other countries that are part of the China supply chain, the impact could be as much as 3 per cent, he said.

“I do hope for the good of the world that these trade frictions can be contained, that they can be mutually resolved and that they do not escalate into full-blown trade protectionism, which I think would be very bad news for the world,” Viñals said.

Standard Chartered could potentially benefit if China were to trade less with the US and more with other countries in its footprint, Viñals said.

“That could actually generate extra income that could be a positive factor for us,” Viñals said.

On Tuesday, Standard Chartered said that it had a profit of US$1.59 billion in the first six months of 2018, compared with a profit of US$1.21 billion a year earlier.

The market was underwhelmed by the bank’s results. Standard Chartered’s shares closed down 3.7 per cent at HK$69.40 in Hong Kong on Tuesday following the announcement, and shares were down more than 3 per cent in London in mid-morning trading there.

“The group performed steadily in the first half, with encouraging progress on several fronts,” Winters said in a news release. “Income from key products continues to grow strongly, we are investing in exciting new digital and other transformative initiatives and our strengthened risk discipline is paying off.”

Revenue increased 6 per cent to US$7.6 billion, driven by double-digit pre-tax profit gains in its corporate and institutional and retail banking businesses. That compared with revenue of US$7.2 billion in the first half of 2017.

The bank reported its first profit since 2014 last year and announced it would resume paying a dividend. Standard Chartered has operated in Hong Kong since 1859 and is one of three lenders that issue bank notes in Hong Kong. The lender employs about 86,000 people worldwide, including about 6,000 in Hong Kong.

Operating expenses rose 7 per cent to US$5.1 billion, driven by investments in staff and technology, the bank said. Regulatory costs also rose 7 per cent to US$638 million in the first half.

Standard Chartered says it will apply to operate a virtual bank in Hong Kong

The corporate and institutional banking segment reported a 69 per cent increase in underlying pre-tax profit, a measure of profit before certain costs, to US$1.1 billion in the first half of the year. Underlying profit before tax in the retail banking business rose 23 per cent to US$617 million in the first six months of 2018, driven by strong performance in Asia, particularly in Hong Kong and Singapore, the bank said.

Standard Chartered’s operations in Southeast Asia and South Asia posted a 47 per cent increase in pre-tax profit in the first half of the year. Pre-tax profit rose 26 per cent in its Greater China and North Asia segment in the first six months of 2018, the bank said.

In Hong Kong, underlying profit before tax rose 25 per cent to US$828 million in the first half of the year, the bank said.

The half-year results came after the lender said in May that its underlying profit increased 20 per cent in the first quarter.

Since he joined the bank as CEO three years ago, Winters, the former head of JPMorgan Chase’s investment bank, has overhauled Standard Chartered’s leadership, cut 15,000 jobs and sold several underperforming businesses.

The results announcement came just days after the bank said that it had again extended a deferred prosecution agreement (DPA) until the end of this year with US authorities related to accusations that it transferred billions of dollars on behalf of Iran and other countries facing sanctions. It was the third time the bank had agreed to extend the agreement since 2014.

The extension “acknowledges that the group has taken a number of steps and made significant progress towards compliance with the requirements of the DPA and enhancing its sanctions compliance programme, but that the programme has not yet reached the standard required by the DPA”, the bank said in a news release on Friday.

The bank said that it would continue to cooperate with US authorities.

“Concluding these historical matters remains a focus for us,” Winters said on Tuesday.

Standard Chartered reached the agreement, in which it would avoid criminal prosecution if it kept away from other wrongdoing and made changes to its compliance functions, with the US Department of Justice and New York authorities in 2012. It agreed to pay US$667 million in fines related to the matter at the time.

The bank is one of 60 companies that intends to apply for a virtual banking licence later this year as Hong Kong authorities encourage the development of fintech opportunities here.