Standard Chartered plc (STAN) Ordinary US$0.50

Higher rates helped boost income from both Transaction Banking and Retail deposits, and Wealth Management also performed well.

Underlying profit before tax rose 74% to $1.1bn, the significant outperformance compared to operating income was almost entirely driven by lower loan impairments.

The group’s CET1 ratio, a key capital measure, was 14.1% over the quarter (target 13-14%). That’s enabled a new $1bn buyback and a final dividend of $0.21. That takes total dividends for the year to $0.27, up 50%.

For 2024, operating income is expected to grow at the top end of a 5-7% range (previously 8-10%). Medium-term guidance looks for return on tangible equity to grow to 12% in 2026 (2023: 10%).

The shares rose 6.6% in early trading.

Our view

Standard Chartered’s fourth-quarter results benefitted from some one-off items. Profit before tax beat expectations largely due to a release of impairments back to profit from one of its divisions. Strip that out and underlying performance was a little weaker than expected, but the focus will be on guidance.

The outlook for 2024 is a smidge lower than analysts had priced in, but the medium-term guidance out to 2026 shows promising signs. Volume growth, cost cuts and a benefit from the structural hedge are expected to help deliver a return on tangible equity of 12% in 2026 (2023: 10%). If delivered, and it’s a big if in our view, that should provide a material tailwind to the current valuation – likely why markets have reacted positively.

Standard operates a sprawling business, both geographically and in terms of product ranges. Domestic Chinese exposure, while a small part of the pie has been in focus. The group took another write-down of its investment in the domestic Chinese bank, Bohai, over the quarter – taking the total write-down to $850mn for the year.

Performance last year was heavily weighted towards interest income. But it's not UK rates that move the dial. Higher rates in key areas like Hong Kong and Singapore have been providing a tailwind. Rates are expected to come down, but there should be enough of a tailwind from asset growth, hedge income and a benefit from clients switching back to shorter-term deposit accounts.

Fee-earning businesses are also vital. Standard has spent several years investing in the Financial Markets and Wealth Management divisions to help drive income that’s a little less dependent on interest rates. These divisions are also less capital intensive which gives a little more wiggle room for things like buybacks – though none are ever guaranteed.

There is a path to rerating if new medium-term guidance is taken at face value and the balance sheet’s in a good place. Management did a decent job of spelling out the moving parts, but there’s a big difference between plans and reality. We think the sprawling footprint could do with some streamlining and prefer some of the more focused names in the sector.

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