28th Apr 2015 10:25
LONDON (Alliance News) - Standard Chartered PLC Tuesday reported a 22% drop in first quarter pretax profit, due to pressure on operating income and higher charges for bad loans.
The lender's results for the first quarter follow a tough year for the bank, which has been hurt by weaker sentiment towards emerging markets, lower commodity prices, and low interest rates set by central banks. Tougher regulations following the global financial crisis of 2007-09 have increased costs for the sector as a whole, while a UK levy on banks' global balance sheets has raised questions about whether the London-headquartered emerging markets bank might be better off if it moved out of the UK.
While Asia-focused rival HSBC Holdings PLC launched a review last week on the possibility of such a move, Standard Chartered made no major statement on the subject of domicile.
Finance Director Andy Halford told reporters that the bank's domicile is "something the board reviews from time to time" and "one of those evolving things in life", but he said there has been no change in its "overall position" on the matter.
Halford said the bank is estimating that the cost of the UK bank levy will increase to about USD540 million in 2015 from USD366 million in 2014.
The bank levy is one factor in decision about where the bank should base its headquarters, according to Halford, but not the only matter to take into account.
Standard Chartered shares were down 2.9% at 1,083.50 pence on Tuesday morning.
Standard Chartered, which is focused on Asia, Africa and the Middle East, said it made a USD1.47 billion pretax profit in the quarter ended March 31, compared with USD1.88 billion in the corresponding quarter of the prior year. The numbers exclude adjustments to Standard Chartered's own credit standing.
Operating income fell to USD4.40 billion from USD4.57 billion, which it said was due to exiting businesses and the strength of the US dollar against currencies in emerging markets, while operating expenses edged up to USD2.47 billion from USD2.45 billion due to the need to invest in improvement to the bank's conduct and compliance systems.
The charge for loan impairments increased to USD476 million from USD265 million, driven by "elevated" impairments from its corporate and institutional clients.
"Trading conditions remain challenging and the actions we are taking to de-risk, cut costs and build capital are having an impact on near-term performance. However, underlying business volumes generally remain strong. We remain confident in the strength of our franchise, the opportunities in our markets and in our ability to build returns to an attractive level in the medium term," Chief Executive Peter Sands said in a statement.
Sands said the bank is on track to strengthen its capital position. It is aiming to increase its common equity tier one ratio, a key measure of a bank's financial strength, to between 11% and 12% in 2015 from 10.7% at the end of 2014. Sands, who has led the bank since November 2006, said the bank's target of cutting USD400 million from its costs every year is also within reach.
Although financial analysts have been divided as to whether the bank needs to embark on an equity fundraising to boost its capital position, Standard Chartered has opted to build its capital levels by exiting underperforming businesses and reducing risk-weighted assets.
Speaking to reporters via conference call, Finance Director Halford said that the focus will remain on building capital strength through cutting risk-weighted assets and managing the business.
The lender is awaiting the arrival of Bill Winters, the former JPMorgan Chase & Co executive, who will succeed Sands in June. It is appointing Winters as part of a broader board shake-up, which also will see the departure of Chairman John Peace in 2016.
Standard Chartered, which fared better than other banks in the global financial crisis, enjoyed the benefits of its exposure to fast-growing emerging market economies for more than ten years until reporting a drop in pretax profit for 2013.
The lender's fortunes have taken a turn for the worse since it was forced to pay USD667 million to US authorities in December 2012 due to failures over US sanctions, while investor sentiment towards the bank's key emerging markets has been rocky amid the US Federal Reserve's gradual withdrawal of its economic stimulus policies.
The New York State Department of Financial Services fined the bank USD300 million in August 2014 over anti-money laundering deficiencies, followed by the extension of a deferred prosecution agreement entered in December 2012 with the US Department of Justice and the New York County District Attorney's Office later that year.
By Samuel Agini; [email protected]; @samuelagini
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