Standard Chartered Says Revenue Declined in Third Quarter

Standard Chartered Bank Building
The Standard Chartered Bank Building stands in Hong Kong. Photographer: Jerome Favre/Bloomberg

Standard Chartered Plc, the U.K. lender that makes three-quarters of its profit in Asia, said third-quarter revenue fell, hurt by its corporate-banking units.

Revenue in the three months to Sept. 30 dropped by a “low single-digit percentage” from the year-earlier period, the lender said in a statement today. Operating profit for the third quarter was “slightly” lower, Finance Director Richard Meddings said on a conference call. Revenue from the asset and liability management unit, which manages funding for the lender, fell 20 percent in the first nine months of the year, dragging down wholesale banking.

Standard Chartered gets about three-quarters of its profit from corporate banking, which includes trade finance, payment processing and some investment-banking activities such as merger advisory and equities. The lender has said it doesn’t expect to hit its target of at least 10 percent revenue growth this year.

“There’s no meaningful growth being generated,” said Jason Napier, a Deutsche Bank AG analyst in London who rates the lender a hold. “Though costs are being flexed in line with top line performance, forecasts must be for higher loan losses next year, which will crimp profit growth even if the top line improves.”

Loan impairments at the consumer banking unit overseen by Steve Bertamini remained at “elevated levels,” the bank said. Total impairments in the third quarter were “some tens of millions of dollars” more than a year earlier, the firm said.

The shares closed at 1,543.50 pence in London, up 0.6 percent on the day. They have dropped 1.8 percent this year, making it the only of Britain’s five biggest banks to decline.

Compliance Costs

Costs in the quarter were “broadly” the same as last year even as the regulatory and compliance expenses increased, the lender said. Standard Chartered was fined $667 million by U.S. regulators last year for breaches of U.S sanctions on Iran.

The bank has added 2,000 workers in compliance and legal over the last three years, Meddings said. Even so, the company has about 2,000 fewer employees than a year ago, he said. The firm had about 89,000 staff at the end of 2012.

“The key question for management is whether they can adapt their growth-orientated model to a more returns-driven one -- i.e. cost-cutting -- in markets or segments where top-line income growth has faltered,” Sandy Chen, an analyst at Cenkos Securities in London who rates the bank a buy, said in a note to clients today.

Singapore Revenue

Revenue and profit growth at Standard Chartered’s Hong Kong and African businesses in the first nine months increased by at least 10 percent. By contrast, revenue in Singapore fell following government measures to cool the housing market.

“Looking forward, we are concerned if the consumer banking business in Singapore will remain a drag and when the Korea business can be turned around,” Steven Chan, a Hong Kong-based analyst at Maybank Kim Eng Securities Pte with a hold rating on the stock, said by telephone today.

In August, the lender posted a 24 percent drop in first-half profit to $2.18 billion after writing down the value of its Korean business by $1 billion. The bank at the time said the country’s personal debt rehabilitation program had spurred a jump in loan impairments.

Korean revenue has fallen less than 10 percent this year and Standard Chartered expects to book a one-time tax-related cost of about $60 million in that nation for the full year, the lender said today.

“Our clear stance is to manage to a smaller-scale business in Korea,” Meddings said. Getting the Korean business “into shape” will take two to three years, he added.

Currency Hit

Weakness in emerging-market currencies including the Indian rupee and Indonesia’s rupiah since the bank reported its first-half earnings will hurt full-year revenue by about $200 million and profit by $70 million, Standard Chartered said.

Revenue and operating profit expanded at a “low single digit rate” in the first nine months of this year, the lender said. Operating profit for consumer banking dropped by a “mid single digit” percentage, while corporate banking increased by a “low single digit” pace.

“Full-year pretax profit is unlikely to meet the market consensus,” Maybank’s Chan said. The firm may post a full-year pretax profit of $7.56 billion, according to the median estimate of 30 analysts surveyed by Bloomberg.

In separate reports today, Deutsche Bank AG said third-quarter profit fell 94 percent as income from debt trading slumped, while UBS AG, Switzerland’s largest lender, said it probably won’t be able to reach its 2015 profitability goal after its regulator demanded the lender hold more capital.