Coronavirus - we're here to help
From how to access your account online, scam awareness, your wellbeing and our community we're here to help.

Skip to main content
  • rainbow over text: 'thank you NHS'
  • Register
  • Help
  • Contact us
  • Log out of your HL account

Standard Chartered - resilient revenue growth

Nicholas Hyett, Equity Analyst | 29 April 2020 | A A A
Standard Chartered - resilient revenue growth

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: 464.60 | Buy: 465.00 | Change 33.50 (7.77%)
Chart View factsheet

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

Income rose 15% at constant exchange rates to $4.3bn. However, that includes a $358m boost stemming from changes in the value of the group's own debt, without which income growth would have been 6%.

A large provision for bad loans related to the coronavirus outbreak meant underlying profits before tax fell 12% to $1.2bn or down 36% excluding the valuation adjustment.

The bank will not be paying an interim dividend this year.

The shares rose 3.0% in early trading.

View the latest Standard Chartered share price and how to deal

Our view

Standard Chartered may be UK listed, but it's really an Asian bank. That didn't exempt it from the Bank of England's call for the sector to scrap any dividends until next year, but it does make its position in the current crisis rather different.

Volatility in financial markets has translated into a bumper result in the investment bank while corporate lending has spiked as companies look to secure extra liquidity. The bank's made significant provisions for higher loan defaults resulting from the crisis. The debt adjustments first quarter results are an accounting technicality we think investors can, by and large, ignore.

So far, so familiar.

However, there are some signs the group's Asian markets have weathered the current coronavirus storm better than their Western counterparts. While we remain wary of the risk of a second wave of virus infections, and additional lockdowns that would bring, that could means Standard Chartered turns the corner quicker than more domestically focused rivals.

The bank is also more exposed to dollar interest rates than sterling. And while the recent Fed interest rate cuts have knocked around $600m off this year's revenue, historically the US central bank has been better able to raise rates again than the Bank of England. Low interest rates are a problem because while falling rates will largely be passed onto borrowers (thanks to a combination of base rate tracking loans, competition and regulatory action) the interest banks pay to savers is already on the floor. With little room to push funding costs lower the net interest margin (the difference between what the bank can make on loans and pays for funding) will be squeezed. That will significantly reduce the profitability of loans.

It's worth noting though that Standard Chartered does face headwinds from weakening emerging market currencies and a strengthening dollar. Companies that borrow in dollars but earn profits in local currencies will find borrowing more expensive, and Standard Chartered's local currency denominated profits will be worth less.

Early on in my career I was told that 'if you want access to a particular economy, buy a bank'. That remains true today. Given its relatively healthy capital position Standard Chartered is perhaps a reasonably straight forward play on a stronger recovery in Asian markets than in the West - although to some degree all economies are intimately linked.

That's not say investors can afford to be blasé about the risks in Standard Chartered. Emerging markets are inherently higher risk and if we enter a serious global recession they could suffer badly.

Register for updates on Standard Chartered

First Quarter Results

Net interest income fell 4% in the first quarter of the year, to $1.8bn, as a lower net interest margin (the difference between what the bank makes on loans and pays for funding) offset increased loans to customers.

Other income rose 31% to $2.5bn, or 12% excluding the adjustments relating to debt valuation. That reflects a particularly strong result in rates and currencies businesses in the Financial Markets division.

The bank reported credit impairments relating to bad loans of $956m in the first quarter. Impairments were spread across the retail, investment and commercial banks although Corporate & Institutional Banking accounted for the vast majority. Further impairments are likely in the future.

Underlying operating expenses fell 1% at constant currency to $2.4bn.

Total CET1 capital remained broadly unchanged compared to the previous quarter, however increased lending meant the group's CET1 capital ratio fell from 13.8% at the start of the year to 13.4% at the end of the quarter.

Standard Chartered expects a gradual recovery from coronavirus outbreak, with the global economy moving out of recession in the second half of 2020. The group expects the recovery to driven by Asian markets.

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 disclosure for more information.