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Standard Chartered - guidance raised, buyback announced

Standard Chartered reported an 18% rise in half-year income to $9.0bn, excluding currency moves. Growth was largely down to higher rates...

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Standard Chartered reported an 18% rise in half-year income to $9.0bn, excluding currency moves. Growth was largely down to higher rates, with net interest income up 35% to $4.8bn. Net interest margin (the profitability of lending/borrowing) rose 0.35% to 1.67%.

Underlying profit before tax rose 29% to $3.3bn. Higher income offset an 8% rise in costs an impairment charge of $172m in preparation for additional defaults.

The CET1 ratio at 14.0% was flat and at the top of target range. A new $1bn buyback was announced and a 50% higher dividend at USD 6 cents per share.

Full-year guidance has been raised. Income is expected to grow 12-14%, ignoring currency moves, and net interest margin is expected at 1.70%.

The shares rose 5.6% in early trading.

View the Standard Chartered share price and how to deal

Our view

Given the scrutiny the banking sector's been under in recent months, it's a breath of fresh air to see Standard Chartered post another earnings beat and an improved outlook.

Higher interest rates take centre stage, with the vast majority of income growth coming either directly from retail deposits or the increase in activity that higher rates meant for the cash management division. The banking giant is very much an Asian bank, despite being listed in London, so it's not UK rates that move the dial. Rates in key areas like Hong Kong and Singapore have been rising.

Net interest margin, a measure of how much profit a bank can earn on its deposits and lending, is expected to settle at around 1.7% over the year. That leaves room to generate a healthy profit, but it's not the only cog for Standard.

Fee-earning businesses like wealth management, investment banking and financial market trading are vital. These help reduce reliance on interest rates and provide diversification when markets are choppy. Wealth management, for example, is highly correlated to market confidence and has struggled of late. But the second quarter did show positive signs, reversing the trend of 5 straight quarters of year-on-year declines as signs creep in that activity in China is rebounding.

But that very same volatility boosts the financial market division, which includes areas like macro and credit trading, where performance over the second quarter reached record levels.

Issues with China's commercial real estate (CRE) sector have been a worry. But there were positive signs as provisions set aside for bad debt over the half were down on the prior year and exposure to CRE is being carefully managed. But it's too early to call an end to the trouble.

Liquidity is front of mind for management, and the CET1 ratio (a key measure of balance sheet strength) is toward the top end of the target range. That's paved way for a fresh £1bn buyback and a decent hike in the dividend - though no returns are guaranteed.

Overall, Standard Chartered has genuine promise, and we continue to admire its exposure to Asian markets and alternative sources of revenue. The valuation doesn't look overly demanding but we can't rule out ups and downs - especially in the current climate.

Standard Chartered key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. 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.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 28th July 2023