Standard Chartered stood out from the gloom of a torrid banks reporting season yesterday by announcing record annual profits and a dividend increase.
The emerging markets bank increased pre-tax profits by 19 per cent to $4.8bn (£3.4bn) as its wholesale banking operation took market share from weakened rivals. The full-year dividend rose 3.3 per cent to 61.62 cents a share, making it the only UK bank to increase the payout to shareholders. It will also be the only British lender to pay cash bonuses to directors, though they will be down by as much as 25 per cent.
The bank boosted customer deposits by 30 per cent and announced a core tier one capital ratio of 7.6 per cent, about a percentage point stronger than analysts expected. "We have started the year in good shape with a very strong balance sheet and liquidity," Peter Sands, the bank's chief executive, said.
The shares rose 7 per cent to 630p, making the bank the best blue chip performer on a grim day for the FTSE 100.
The London-based bank admitted that the speed and severity of the downturn had taken it by surprise but predicted that recovery would come much sooner in Asia, Africa and the Middle East thank in the West.
The bank's growth was driven by a 27 per cent rise in wholesale banking profit to $3bn. Loan impairment jumped to $384m from just $25m a year ago as clients in the rapidly slowing economies of Korea, Hong Kong and other Asian countries struggled to repay. But increased bad debts were more than offset by booming business volumes and fatter margins as the bank took advantage of disarray among its rivals to grab market share.
Analysts have been concerned for a long time that Standard Chartered's growth depended too heavily on uncertain earnings from companies that rely on volatile markets for business. But Mr Sands said the wholesale business was based on traditional commercial banking activities such as lending, cash management and trade finance.
"That [business] does get affected by economic activity but there isn't a direct link between the slowing economy and our performance because the missing part of the equation is market share. Competition has been disappearing faster than demand," Mr Sands said.
He added that wholesale banking had a very strong January and that business was good in February. Consumer banking profits at Standard Chartered dropped by a third to $1.1bn as bad debts rose and revenue fell due to a drop-off in wealth management sales.
Analysts welcomed the results and the bank's strong financial position but some remain wary about Standard Chartered's prospects this year.
"StanChart is a bank heavily geared to a sharply slowing Asian economy, which should impact capital and revenues. Given the huge uncertainty we continue to maintain a cautious stance," analysts at Morgan Stanley said.
The bank raised £1.8bn from investors in December to strengthen its capital ratios against losses caused by the downturn but also said it could use the money for acquisitions.
Mr Sands said that the bank would consider buying assets such as Royal Bank of Scotland's Asian businesses but added that the bank "will err even more on the side of caution" in turbulent times.