26th Feb 2019 11:38
LONDON (Alliance News) - Standard Chartered PLC on Tuesday reported top line growth but missed consensus, as the bank updated investors on its new strategic plan going forward that will see it restructure its businesses in India, Korea, UAE and Indonesia.
Standard Chartered also significantly increased its final dividend by 36% on the prior year.
It is paying 15 US cents as a final payout, taking the total for 2018 to 21 cents compared to 11 cents in 2017. Consensus had been for a 19.7 cent total return.
The bank said it intends to increase its dividend over time and, as part of its new strategic plan, hopes to double its dividend by 2021.
Shares in the FTSE 100-listed emerging-markets focused lender were down 2.5% in midday trade at 603.40 pence each. In the past 12 months, shares are down 27%.
Pretax profit on a statutory basis rose to USD2.55 billion in 2018 from USD2.42 billion, short of consensus of USD2.98 billion.
On an underlying basis, pretax profit was USD3.88 billion versus USD3.01 billion.
The rise in profit, StanChart said, was due to higher quality income alongside cost and asset origination discipline.
StanChart's operating income for 2018 was USD14.79 billion, higher from USD14.43 billion a year before but short of consensus of USD15.02 billion.
Operating expenses, StanChart said, were USD11.65 billion, up from USD10.42 billion a year before and above consensus of USD10.24 billion. The lender saw it credit impairment halve in 2018 to USD653 million from USD1.36 billion in 2017.
StanChart's Corporate & Institutional Banking unit saw its profit jump 64% to USD2.07 billion. A "resilient" fourth quarter from the unit's Financial Markets segment contributed to the increase but the rise was primarily attributed to rising global interest rates.
Its Retail Banking unit increased profit by 27% to USD1.03 billion. The unit suffered from "slightly lower" income in the fourth quarter but continued its focus on increasing its proportion of income from serving "affluent and emerging affluent clients". Income growth in both of StanChart's Asia regions was attributed for the rise in profit.
The bank's Commercial Banking unit suffered a 21% reduction in profit in 2018 to USD224 million.
Regionally, Greater China & North Asia continues to be StanChart's breadwinner.
The region saw a 22% growth in profit to USD2.37 billion, with particularly pleasing growth in China and Hong Kong. The lender's ASEAN & South Asia businesses doubled profit to USD970 million, with Singapore driving profit higher.
In African & Middle East, StanChart reported a 17% decrease in profit to USD532 million - StanChart blamed the "challenging" macroeconomic conditions for the drop. In Europe & Americas, the lender's profit more than doubled to USD154 million, with UK's 10% income growth offsetting a reduction in income from the US.
StanChart's common equity tier 1 ratio stood at 14.2% versus 13.6% in 2017. The lender's net interest margin increased over the period to 1.58% from 1.55%.
StanChart ended 2018 with USD258.30 billion in risk-weighted assets, an 8% decrease on the year before.
The cost to income ratio was 78.8% from 72.2%, while the return on tangible equity on an underlying basis was 5.1% from 3.9%.
StanChart's loans & advances to customer in 2018 decreased 9.1% to USD256.56 billion. Customer account deposits increased 5.5% to USD391.01 billion.
StanChart recently made a USD900 million provision due to historic financial crime matters and foreign exchange trading issues.
Other charges for the fourth quarter include USD159 million for its Principal Finance divestment and USD169 million related to new strategic priorities.
The bank "refreshed" its strategic priorities Tuesday in its long-awaited update on Chief Executive's Bill Winters plan first set out when he took over the role in 2015.
"Over the last three years we have fundamentally overhauled the bank. It is now a solid platform off which we can grow profitably and sustainably to deliver a double-digit return on tangible equity by 2021. We will achieve this through relentlessly focusing on where we have a distinct competitive advantage, attacking the residual causes of lower returns and ramping-up innovation and productivity. We view the profound technology-driven changes in banking as an opportunity: we are big enough to be relevant to our most complex clients and partners, yet nimble enough to be a profitable disrupter," said Winters.
These priorities, StanChart said, are a return on tangible equity of at least 10% by 2021. It has also reaffirmed its target of income compound annual growth rate between 5% and 7%.
The bank wants to reduce costs by USD700 million, with the resulting operating leverage "significantly" improving profitability.
StanChart will return surplus capital to shareholders not needed to fund additional growth, and its dividend could double by 2021.
It is targeting a CET1 ratio of between 13% and 14%.
To undergo this planned restructure, the bank is expecting a further USD500 million of restructuring charges in the next three years and, as a result, the lender has decided its Indonesian joint venture "is no longer core".
As a result, StanChart is looking to offload its 45% interest in PT Bank Permata Tbk.
Currently, the lender has to include all of Permata's assets on its balance sheet but it only benefits from 45% of profit. At current value, Standard Chartered is hoping to get USD1 billion for its stake and free up about USD9 billion in risk weighted assets.
As part of the new plan, Standard Chartered is also looking to restructure its operations in underperforming markets Korea, the UAE and India by "streamlining" its operations.
The lender, however, did not mention if it was exiting any of the 63 financial markets it currently operates in.
StanChart has begun 2019 solidly, it said, but behind a year prior due to a stronger US dollar as well as a stronger comparable.
StanChart said increased interest rates in the US and the US-China trade dispute weighed on market confidence, but it still expects "reasonably" strong global growth in 2019.
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