Hong Kong company reporting season

Standard Chartered profit rises 35 per cent in the third quarter, boosting CEO’s turnaround plan

  • Some investors have become frustrated with the pace of CEO Bill Winters’ efforts to reshape the lender
  • The bank’s stock is off 41 per cent since January
PUBLISHED : Wednesday, 31 October, 2018, 2:00pm
UPDATED : Wednesday, 31 October, 2018, 10:29pm

Standard Chartered said on Wednesday that its earnings rose 35 per cent in the third quarter, providing ammunition to chief executive Bill Winters as he seeks to defend his turnaround plan amid rising investor frustration over the bank’s performance.

It reported a profit of US$752 million in the third quarter, compared with US$557 million in the same period a year ago.

“Broadly, we’re very happy with the progress we’ve made”, Winters said on a conference call with analysts on Wednesday. “We fully recognise that we are not covering our cost of capital. We have more to do, not only with ourselves, but for the market’s understanding of what we can do with this franchise”.

The bank reported a pre-tax profit of US$1.06 billion in the third quarter, which was ahead of analysts expectations, according to Reuters.

On Wednesday, Standard Chartered warned that ongoing trade tensions weighed on investor sentiment in some of its markets in the quarter.

The lender indicated earlier this year that only about 3 per cent of its business is related to traffic between the US and China, which have been engaging in a tit-for-tat escalation of tariffs between the two countries.

“We have seen sentiment clearly changing a little bit”, Andy Halford, the Standard Chartered chief financial officer, said on a conference call with the media. “It has slightly slowed down some of the capital market activity as a consequence. Where we have seen reduction of activity, some of that has flowed through [in terms of] reduction of income.”

Based in London but generating much of its revenue in Asia, Standard Chartered performed well during the global financial crisis, but struggled beginning in 2013 as emerging markets economies were under pressure. The bank also faced reputational damage as it ran afoul of US regulators.

Since he joined in May 2015, Winters has overhauled the bank’s executive ranks, cut 15,000 jobs and sold several underperforming businesses. At the time, Winters replaced Peter Sands, then-one of the longest serving chief executives in British financial services industry.

The bank returned to an annual profit in 2017 after two years of deep losses and posted a 31 per cent profit jump in the first half of this year, but some investors have been frustrated with the pace of the turnaround.

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

Since late January, its stock has declined 41 per cent in Hong Kong, a deeper drop than several Asian and emerging market indices, which are off broadly this year. That has fuelled frustration among some investors.

Overall, the bank’s shares are down 54 per cent in Hong Kong since Winters joined the company and have lost nearly half their value in London in the same period.

They fell 1.5 per cent to close at HK$54.65 in Hong Kong following the results announcement on Wednesday.

We fully recognise that we are not covering our cost of capital. We have more to do …
Bill Winters, Standard Chartered

Standard Chartered plans to unveil its new strategic plan in February, but executives declined to provide details on Wednesday.

“There’s sort of nothing off the table. I think of this more as a sharpening and an evolution, rather than something that is a complete rebase of our plan”, Halford said. “We’ve made progress. We’ve got good momentum. We’re very happy with our positioning in many of the faster growing markets there are in the world.”

Two years ago, Standard Chartered set a return on equity target of 8 per cent for the end of 2018, but has yet to come within striking distance of that level. On an underlying basis, the bank had a return on equity of 6.6 per cent in the first nine months of 2018.

The lender said that it remained confident it can generate returns in “excess of 10 per cent as we continue to execute our plans.” Winters has set a return on equity target of 10 per cent by 2020.

“The disciplined execution of our strategic objectives including ongoing cost efficiency actions means we are on track to deliver the financial commitments we made earlier in the year, despite the more challenging operating conditions that emerged in some respects in the third quarter, particularly in the Africa & Middle East region”, the bank said in its earnings statement.

Standard Chartered reported a 14 per cent decline in operating income in its Africa and Middle East segment in the quarter.

Revenue increased 4 per cent to US$3.72 billion in the third quarter, driven by gains in its Greater China and North Asia business. That compared with revenue of US$3.59 billion in the same period in 2017.

Net interest income increased 8 per cent to US$2.19 billion in the quarter.

Standard Chartered, then known as The Chartered Bank, has operated in Hong Kong since 1859 and is one of three lenders that issue bank notes in the city. The lender employs about 86,000 people worldwide, including about 6,000 in Hong Kong.

Why Hong Kong’s new banknotes should feature famous faces instead of butterflies, rocks and dim sum

Operating expenses rose 1 per cent to US$2.51 billion in the third quarter. Regulatory costs also declined 8 per cent to US$309 million in the quarter.

The bank said that it expected its operating expenses, excluding a levy charged to banks operating in the United Kingdom, are “likely to be similar to the first half”.

The corporate and institutional banking segment reported a 1 per cent increase in operating income to US$1.65 billion in the third quarter. Operating income in the retail banking business rose 1 per cent to US$1.27 billion in the third quarter.

Standard Chartered’s operations in Southeast-Asia and South Asia posted a 2 per cent increase in operating income in the third quarter. Operating income rose almost 10 per cent in its Greater China and North Asia segment in the quarter.

On Monday, the bank said it became the first foreign lender to be granted a licence to provide custody services for domestic fund providers in mainland China, an important step as Chinese regulators look to further open financial markets there.

Standard Chartered also was one of 29 companies to apply in August for the first batch of virtual banking licences in Hong Kong as regulators seek to boost the development of fintech in the city.

It is one of seven lenders to participate in eTradeConnect, a new trade finance platform developed alongside the Hong Kong Monetary Authority that uses blockchain technology.