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Standard Chartered - ahead of low expectations

Standard Chartered have reported first half underlying profit before tax of $1bn. This is down 46% year-on-year, but represents a significant improvement on the $1bn loss in the second half of 2015. Underlying operating income steadied at $6.8bn, following an 18% fall in the previous half.

The market pushed Standard Chartered shares up 4.8%, following the better than expected results.

At its strategy update last year the group said that it would target an 8% return on equity (ROE) in 2018, and 10% by 2020. Despite delivering a positive ROE this half of 2.1% (following negative numbers in the previous quarter), the group believes that changes to the macro-economic environment mean that it will now take longer than expected to meet expected returns.

The group is more cautious on the outlook for the future than it was in November 2015. Lower for longer interest rates, slower economic growth rates in key Asian economies, lower global trade volumes and Brexit related uncertainty are all expected to hamper performance.

Nicholas Hyett, Equity Analyst, Hargreaves Lansdown:

‘There’s quite a lot of bad news baked into bank share prices at the moment, so for Standard Chartered, beating low expectations has been taken as a positive by the market. Profits are down, but performance is much improved on the losses sustained in the second half of 2015.

When emerging markets submerge, a business like Standard Chartered will always feel the pain, especially when the bank raised its risk appetite during the bull years. It is now down to the new CEO Mr Winters and his team to sort out the mess.

Plans to shed riskier assets, cut operating costs and rebuild capital make perfect sense in the circumstances, and early signs suggest that they are making some headway. But this is all a far cry from the image of Standard Chartered as the growth bank that investors had just a few years ago.

In the long run, Standard Chartered's emerging market bias could be a huge positive. Right now though, the bank faces what could be quite a lengthy turnaround process. If the bank can hit the 10% Return on Equity target, and pay out half of earnings as dividend, then an attractive dividend yield may one day be possible. Right now though, a healthy dividend looks a dim and distant prospect.’


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