2nd May 2018 15:46
LONDON (Alliance News) - FTSE 100-listed Standard Chartered PLC on Wednesday reported a strong rise in first quarter earnings with healthy income growth from China the key driver, as its turnaround remains on track.
Standard Chartered shares were down 1.3% at 759.30 pence, among the worst blue chip performers on Wednesday. The stock touched an intraday high of 781.20p in early morning trade before retreating.
"The share price rallied for the past month in anticipation of good figures today, and if the wider positive trend continues it could target 800p," said CMC Markets analyst David Madden, who attributed the share price fall to profit taking.
The emerging-markets focused bank on Wednesday said strong underlying income momentum, stable credit quality, and a continuing focus on cost-control delivered significant year-on-year improvement in profitability in the first quarter of 2018.
The bank recorded pretax profit of USD1.19 billion for the three months to March-end, up 20% from USD990 million in the comparative year-ago quarter. In the fourth quarter of 2017, the bank posted a pretax loss of USD113 million.
Profit before tax and exceptional items grew 20% to USD1.26 billion from GBP1.05 billion a year ago and from USD277 million in the fourth quarter of last year.
Total operating income for the first quarter was USD3.87 billion compared to USD3.48 billion in the corresponding period a year earlier. The strongest performance came from its Greater China & North Asia region with income of GBP1.56 billion from USD1.41 billion in the first quarter last year.
The bank's Common Equity Tier 1 ratio stood at 13.9%, up 26 basis points from December-end, as it generated profit in the quarter while risk-weighted assets were broadly unchanged.
"Strong underlying income momentum, stable credit quality and a continuing focus on cost control delivered significant year-on-year improvement in profitability in the first quarter. This encouraging performance is the result of management actions to improve returns, in a macroeconomic environment that remains conducive to profitable growth," the company said.
Over the past two years Standard Chartered has been restructuring under Chief Executive Bill Winters, a former JPMorgan banker, who cut more than 15,000 jobs and axed whole business units such as Asian equities, targeting USD2.90 billion in cost savings by 2018.
The company said it has achieved 95% of the four-year cost efficiency target with nine months remaining.
In addition, underlying return on equity, a key measure of a bank's profitability, was 7.6% compared to 6.3% in the first quarter of 2017. Standard Chartered has a target of 8%.
"This encouraging start to the year shows that we are firmly on the path laid out in February that will take us above an 8% return on equity in the medium term. We are determined to pass that milestone as soon as we can in a safe and sustainable manner, while continuing to improve our service to our new and existing clients," Winters said.
Hargreaves Lansdown analyst Nick Hyett said original concerns that Standard Chartered's recovery was driven by cost savings rather than income growth are starting to abate following the first quarter performance, although Hyett noted the savings have been "hugely impressive, but they're not a long term source of profit growth".
"First quarter results may not be quite what some had hoped for - after Standard Chartered reported double digit income growth in the first few weeks of the quarter. But growth is still right at the top end of target, and all the cost discipline over recent years means it's dropping straight through to profits," said Hyett.
The analyst also said the lender's recovery is widespread and the bank's medium term target for a return on equity of 8% or higher is within sight.
"In the long run, Standard Chartered's emerging market bias could be a huge positive, driving rapid income growth. If it can hit, and build on, those not very demanding returns targets, the bank's pledge to 'increase the dividend per share over time as the group's performance improves' could make for some very attractive returns," Hyett added.
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