26th Oct 2023 09:40
(Alliance News) - Standard Chartered PLC shares came under heavy selling pressure on Thursday, as the bank's exposure to Chinese banking and real estate "drove a bus" through its third-quarter profit.
The Asia-focused lender said operating income rose 4.5% to USD4.52 billion from USD4.33 billion a year before.
However, pretax profit dropped 54% to USD633 million from USD1.39 billion, well below the USD1.41 billion pencilled in by analysts, according to company-compiled consensus.
On an underlying basis, pretax profit slipped slightly to USD1.32 billion from USD1.35 billion, also undershooting the USD1.44 billion figure expected by consensus.
Shares in StanChart dropped 11% to 636.20 pence each in London on Thursday morning, having closed down 11% at HKD59.75 each in Hong Kong on Thursday afternoon.
The bottom-line hit came as credit impairments increased to USD292 million from UD227 million, which included further charges related to the Chinese commercial real estate sector.
The firm also booked an impairment of around USD700 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, StanChart said.
"China remains both a blessing and a curse for Standard, with the country's faltering economic recovery weighing heavily on these results," noted interactive investor's head of Markets, Richard Hunter.
"These provisions have driven a bus through earnings...Meanwhile, pressure remains on both net interest income and net interest margin," he added.
Underlying net interest income rose to USD2.39 billion from USD2.02 billion the year before, but missed consensus forecasts of USD2.49 billion. Net interest margin improved annually to 1.63% from 1.43%, but also fell short of consensus forecasts of 1.72%.
"In terms of income, there is a mixed picture, with Financial Markets dropping by 8% against strong comparatives and reduced market volatility, while Wealth Management increased by 18%, primarily on strong flows of net new money. Customer deposits and loans also dipped by 3% in the period, reflecting some uncertainty in the Asian region in which Standard is primarily exposed," Hunter continued.
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%.
ii's Hunter considered: "After some years in the doldrums after previously having been the darling of the UK banking sector, Standard has for the most part had something of a return to form."
Its shares are up 21% in past year, and down just 0.7% in the year-to-date after the morning's slump.
Hunter concluded: "The currently parlous state of developments in China are an inevitable concern, although Standard is adequately capitalised to withstand such challenges. Indeed, in the medium and longer term the Chinese economy should provide some significant opportunities, and in a region where the bank has a well-established and trusted presence.
"Despite any disappointment which this latest update has delivered, the market consensus of the shares as a cautious buy encapsulates both current challenges and future prospects."
By Elizabeth Winter, Alliance News senior markets reporter
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