Soon we’ll not be supporting this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

Standard Chartered - profits spike despite disruption

Nicholas Hyett | 30 October 2019 | A A A
Standard Chartered - profits spike despite disruption

No recommendation

No news or research item is a personal recommendation to deal. All investments can fall as well as rise in value so you could get back less than you invest.

Standard Chartered plc Ordinary US$0.50

Sell: 440.10 | Buy: 440.30 | Change 0.00 (0.00%)
Chart View factsheet

Market closed | Prices delayed by at least 15 minutes | Switch to live prices

Third quarter underlying operating income rose 8% at constant exchange rates, to $4bn, underpinned by an increase in loans to customers. With operating expenses up 1%, profits rose 16% to $1.2bn.

The shares rose 2.2% in early trading.

View the latest Standard Chartered share price and how to deal

Our view

Standard Chartered's showing promising signs of progress. Cost control's been a hallmark of the bank for some time, but the addition of income growth means profits are taking off.

A not insignificant chunk of revenue is being driven by the volatile Financial Markets business. But with good progress on loan growth and in the Private Bank, there's a solid underpinning of more sustainable income growth too. That should help Standard Chartered achieve the ambitious targets it has set itself for the three years to the end of 2021. Most eye catching is a target of 5% - 7% a year income growth - which the bank now looks on course to achieve in 2019.

Unfortunately the group's still lagging rival HSBC, when it comes to profitability, and 2021 return on equity targets aren't as ambitious either. It's not quite the gung-ho, high-growth bank investors were sold in the early part of this decade.

But a more cautious approach might be no bad thing. Investment banking is volatile, and so are the emerging markets where Standard Chartered gets most of its customers. Volatility squared isn't a good look for a bank. As a result, high finance is set to take a back seat, as the focus shifts to high value private banking, affluent retail banking clients and trade finance

It's not all plain sailing though. Increased exposure to trade finance means Standard Chartered would be among the hardest hit if geopolitical tensions boil over into an all-out trade war. It doesn't help that Greater China & North Asia accounted for 61.4% of underlying profits in 2018 - and signs are that economic growth in the region is slowing. The bank has warned that could make achieving future targets more difficult.

In the long run though, Standard Chartered's emerging market bias should prove a major positive. Their growing and increasingly wealthy populations can drive the income growth the bank is aiming for. An increasingly strong capital position is underpinning loan growth and should help weather market turmoil.

If the bank can hit, then build on, its return on equity targets, the recently completed $1bn buyback and prospective yield of 3.5% could be just the start. Management reckon dividends could double by 2021 - although as ever there are no guarantees.

Standard Chartered shares currently trade on around 0.6 times book value, below its longer term average of 1 times.

Register for updates on Standard Chartered

Third Quarter Results

Quarterly net interest income of $2.4bn was up 9% compared to last year. That reflects a 5.8% increase in loans to customers, with net interest margin (the difference between what the bank pays on deposits and earns on loans) flat year-on-year, and increased trading book assets. Non-interest income rose 4% to $1.6bn.

Operating expenses are expected to increase next quarter from the $2.5bn reported in Q3 - although are expected to grow slower than inflation for the year as a whole. Bad loans increased 143% to $279m, mainly due to a small number of large Corporate & Institutional Banking clients.

The group finished the quarter with a CET1 ratio (a key measure of banking capitalisation) of 13.5%, a light improvement on the end of the first half thanks to higher profits.

Standard Chartered reported an underlying return on tangible equity, banks' preferred measure of profitability, during the quarter of 8.9%. That compares to 7.3% this time last year.

The bank continues to target a 10% return on tangible equity by 2021 - although notes growing geopolitical and economic headwinds.

Find out more about Standard Chartered shares including how to invest

Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Thomson Reuters. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research for more information.