Standard Chartered Shares Fall as China Banking Exposure Bites

Analysts reiterate their 'Buy' rating, despite the company's very public profit fall for the third quarter of 2023

Alliance News 26 October, 2023 | 11:06AM
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Standard Chartered Canary Wharf

Standard Chartered [STAN] reported a sharp drop in profit in its third quarter, taking a hit from its exposure to Chinese banking and real estate, but the firm backed its annual targets.

The Asia-focused lender said operating income rose 4.5% to $4.52 billion (£3.7 billion) from $4.33 billion a year before.

However, pre-tax profit dropped 54% to $633 million from $1.39 billion, well below the $1.41 billion pencilled in by analysts, according to company-compiled consensus.

Shares subsequently dropped 6.8% to HKD62.85 each in Hong Kong on Thursday afternoon.

The bottom-line hit came as credit impairments increased to $292 million from $227 million, which included further charges related to the Chinese commercial real estate sector.

The firm also booked an impairment of around $700 million related to the reduction in the carrying value of its holding in China Bohai Bank. This reflected "subdued earnings and a challenging macroeconomic outlook" at Bohai, the bank said.

On an underlying basis, pretax profit slipped slightly to $1.32 billion from $1.35 billion. This undershot the $1.44 billion figure expected by company-compiled analyst consensus.

At the end of September, StanChart's CET1 ratio was 13.9%, up compared to 13.7% a year before, but down from 14.0% at the end of June.

In the third quarter, the cost-to-income ratio rose to 63.5% from 62.3% a year prior.

Looking ahead to all of 2023, StanChart reiterated that it expects income to increase by 12% to 14% at constant currency. It also still expects net interest margin to average about 170 basis points over the full year, and to achieve a return on tangible equity of 10%.

According to analysts at Bank of America, today's results amounted to an "underlying modest miss".

"Standard Chartered underlying Q3 PBT of $1.32 billion is 7% below consensus," it said.

"Revenues were 1% light of consensus at $4.4 billion [and] the Net Interest Margin was down 1.63% but is guided to close at 1.7% for Q4 2023 as a whole, implying one basis point below consensus.

"There was no further buyback announcement today, nor had we expected one. We discussed [in a previous report] how we see a further $2 billion in each of the 2024 and 2025 earnings seasons. We note that with more than 90% of the current buyback completed, there are likely a couple of months without buybacks ongoing in the market until Q4 [this year].

"We reiterate our Buy rating as the group moves above an 11% return on tangible equity and is set to make high distributions to shareholders."

Standard Chartered chief executive Bill Winters said the group's wealth management division had "continued its recovery with double digit income growth and the financial markets [division's] performance has been resilient against a strong comparator period.

"We remain highly liquid, and well capitalised, with a CET1 ratio towards the top of our target range and confident in the delivery of our 2023 financial targets," he added.

By Elizabeth Winter, Alliance News senior markets reporter

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