26th Apr 2016 10:28
LONDON (Alliance News) - Standard Chartered PLC, listed in London and lending in Asia, Africa and the Middle East, on Tuesday saw its shares rise by as much as 10% after reporting lower-than-expected impairment charges for bad loans in the first quarter of 2016.
Shares in Standard Chartered were up 9.7% at 571.25 pence on Tuesday, the best performer in the FTSE 100, having hit a new 2016 high of 575.20p earlier.
Pretax profit fell to USD589 million in the three months ended March 31 from USD1.44 billion in the corresponding quarter a year earlier, the bank said in a statement.
Standard Chartered's common equity tier-one ratio, a measure of financial strength, improved to 13.1% from 12.6% during the quarter, boosted by a reduction in risk-weighted assets and the profit recorded in the three months.
Operating income of USD3.35 billion was down by 24% on the corresponding quarter a year earlier and up 3% on the final quarter of 2015. Operating expenses fell by 10% to USD2.25 billion year on year.
First-quarter impairment losses on bad loans improved slightly to USD471 million in the quarter from USD476 million year on year, and shrank from the USD1.13 billion seen in the final three months of 2015.
Analysts at UBS said in a note that loan losses were much better than we expected, USD805 million lower than they had estimated prior to the results.
Loan impairment charges relating to clients in Standard Chartered's Corporate & Institutional and Commercial segments was lower quarter-on-quarter, the bank said, in line with prior first-quarter experiences.
Retail client loan impairment benefited from tougher underwriting standards and the bank's move to sell its consumer finance businesses in Hong Kong, China and Korea, Standard Chartered said.
"In no way are we declaring victory," Chief Executive Bill Winters told reporters on a conference call. "Let's keep in mind that we don't feel like we've fully rounded the corner at this point given that non-performing loans are still increasing, albeit at a slower pace."
Gross non-performing loans in the bank's ongoing business increased by USD425 million in the three months to March 31 to USD5.67 billion, largely as a result of a "small number" of commodity-linked exposures. Commodity prices have remained under pressure amid China's economic slowdown.
The bank's commodity finance portfolio stood at USD37 billion at the end of the first quarter, a further reduction since the end of 2015, a year in which net exposure to the sector was cut by 28% to USD39.6 billion. Standard Chartered's exposure comes through financing trade flows.
Winters, who has been trying to make Standard Chartered "lean and focused" since replacing Peter Sands in June 2015, has already raised USD5.1 billion in a rights issue, identified 15,000 job cuts, as well as reducing commodities exposure as part of his plan to restore the bank to health. He also created a "liquidation portfolio" of USD20 billion of assets outside tightened risk tolerance standards.
"Although trading conditions in the first quarter remained challenging, we continue to make good progress on our strategic objectives. The management team is in place, we are taking action to improve recent income trends, managing costs tightly, progressing on key investments, making early progress on the exit of the liquidation portfolio, and maintaining strong levels of capital and liquidity," Winters said in a statement.
Standard Chartered swung to a USD1.52 billion pretax loss in 2015, its first since 1989, with emerging markets seeing weaker growth that year amid volatile Chinese equity markets and depressed commodity prices.
By Samuel Agini; [email protected]; @samuelagini
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