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Standard Chartered - profits rise 7%, buyback announced

First half underlying pre-tax profit rose 7%, ignoring the effect of exchange rates, to $2.8bn.

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First half underlying pre-tax profit rose 7%, ignoring the effect of exchange rates, to $2.8bn. That comes as total income rose, reflecting the benefits of higher interest rates and market volatility.

The group recognised a credit impairment charge of $267m, the majority of which relates to exposure to commercial real estate debt in China.

Standard Chartered announced a new $500m share buyback which will start imminently, and an interim dividend of 4cent per share.

The shares rose 3.5% following the announcement.

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Our view

Standard Chartered might be listed in the UK but its fortunes are anything but domestic. Or ordinary.

Standard Chartered is a lot more reliant on the fortunes of Asian economies than many of its London-listed peers. That means interest rate rises here won't mean as much. Signs in Asia had been promising, but growth is a little more sluggish. As global economies grapple with the fall-out from Covid, we can't rule out further pressure. This is especially true because the group has large exposure to some riskier commercial real estate debt in China, with related impairment charges chipping away at profit's full potential.

Something we like about Standard is that it generates the majority of its revenues from fee earnings businesses like wealth management and investment banking. In the event of low interest rates, these businesses can pick up some of the slack, and when interest rates are looking more sprightly, they're still a great extra source of revenue.

Recent interest rate hikes have been a real boon of late. Combine that with Standard Chartered's generous return on equity target and a commitment to return surplus capital to shareholders, and the result could be an attractive and growing dividend. No shareholder returns or dividends areis ever guaranteed though.

It's worth noting though that Standard Chartered does have some currency complexities. Companies that borrow in dollars but earn profits in local currencies will find borrowing more expensive if the dollar rises, and Standard Chartered's local currency denominated profits will be worth less. This can swing at short notice, so the extra chances for volatility should be kept in mind.

Overall, Standard Chartered has genuine promise, and we continue to admire its exposure to Asian markets and alternative sources of revenue. Please remember nothing is guaranteed, so 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.

Half Year Results (constant currency)

Net interest income rose 12% to $3.6bn, while Other income, which comes from things like trading and commission fees, rose 10% to $4.6bn. Group net interest margins (the difference between what a bank earns in interest on loans and pays on deposits) was 1.32%, compared to 1.22%. The full year average is expected to be 1.4%.

Asia, the group's biggest region, saw operating income rise 4% to $5.5bn, with higher interest rates boosting Cash Management and Retail Deposits, which was partially offset by lower Wealth Management income. Market conditions reduced transaction volumes in Wealth Management, and the impact of COVID-19 restrictions hurt income in the key markets of Hong Kong and China. Underlying pore-tax profit fell 15% to $1.9bn as the group realised credit impairment charges and operating expenses increased.

Operating income was up 8% in Africa & Middle East to $1.3bn. Operating expenses only rosedeclined 3%, helping underlyingand pre-tax profit to riserose 28% to $581m. There was broad-based growth across most products.

FX and Commodities trading helped Europe & Americas increase operating income 48% to $1.454bn which meant underlying pre-tax profit of $704m more than doubled.

The group's CET1 Ratio (an important measure of a bank's capitalisation) was 13.9%, at the top end of the target range. The cost:income ratio was down to 65% and return on tangible equity of 10.1% was up 20 basis points on last year.

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
Sophie Lund-Yates
Sophie Lund-Yates
Lead Equity Analyst

Sophie is a lead on our Equity Research team, providing research and regular articles on a selection of individual companies and wider sectors. Sophie's specialities are Retail, Fast Moving Consumer Goods (FMCG), Aerospace & Defence as well as a few of the big tech names including Facebook and Apple.

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Article history
Published: 29th July 2022