Standard Chartered Plc, the British bank generating more than three quarters of earnings from Asia, forecast record full-year profit even as expansion and increased regulatory scrutiny drove costs higher.
The bank’s second-half “income levels” will be “broadly flat” from the previous six months, Standard Chartered said in a statement today. Net interest income fell “fractionally” this year from 2009, it said.
“Although apparently representing a small miss against elevated market expectations, we regard today’s pre-close trading update as characteristically reassuring, providing clear confirmation of robust” growth, wrote Ian Gordon, an analyst at Exane BNP Paribas who has a “underperform” rating on the stock. “The statement again reaffirms why Standard Chartered is probably the best bank in the world.”
Standard Chartered doubled its headcount over the past five years to 85,000 as it focused on expanding markets in Asia, the Middle East and Africa. The bank has been the best-performer among the world’s 25 biggest lenders by market value since the start of the credit crisis in July 2007, according to data compiled by Bloomberg.
“We are on track to deliver another year of record income and profit,” Finance Director Richard Meddings told journalists on a conference call today. He was “comfortable” with analysts’ full-year pretax profit expectations of $6.13 billion, made in October. That compares with the current $6.3 billion median estimate of 28 analysts surveyed by Bloomberg.
Costs are expected to rise faster than revenue this year “by broadly the same margin” as in the first half, Standard Chartered said. Expenses are being driven by expansion in the branch network and by rising numbers of employees, as well as by “increased regulatory and compliance costs” and stiffer competition for employees. Cost growth will be “broadly in line” with revenue in 2011, after the bank hired about 7,000 people this year, Meddings said.
“Standard Chartered is not good at cost control,” said Raymond Siu, a Hong Kong-based analyst at Quam Ltd. who rates the stock a “hold.”
The company declined 3.6 percent to 1810 pence at the close of London trading for a market value of 42.4 billion pounds ($66.7 billion). Standard Chartered recorded the worst performance in the five-member FTSE 350 index of U.K. banks.
The bank raised about 3.3 billion pounds in a rights offer in October ahead of regulatory changes forcing banks to hold more capital.
Revenue to Double
Standard Chartered plans to more than double revenue from global trading and underwriting over the next three years, Leonard Feder, head of the division, said in November. The bank experienced a “slowdown” in its Financial Markets” unit in the fourth quarter, from the third quarter, Meddings said.
“Standard Chartered is building up its capabilities before all its competitors start to speed up their own expansion plans,” said Dominic Chan, an analyst at BNP Paribas SA in Hong Kong. “The expansion will contribute to its medium-term growth prospects.”
The bank forecast “double digit” pretax profit growth for its consumer and corporate banking units. Credit quality is good, with declining bad debts, Standard Chartered said.
Pretax profit expectations “are reduced on higher-than- expected margin erosion and higher cost growth,” wrote Cormac Leech, an analyst at Canaccord Genuity Ltd. in an e-mailed note to investors today. Investors may be “disappointed,” he added.
The bank in August posted net income of $2.15 billion for the first half of the year, compared with $1.93 billion a year earlier, on lower writedowns for bad loans.
The bank last month said it won’t join any pact among British lender to restrain bonuses for 2010 because 97 percent of its employees work outside the U.K. It has also examined the costs and benefits of relocating overseas amid rising taxation and increased regulation for U.K.-based banks.
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