Standard Chartered Profit Falls as Corporate Division SlipsHoward Mustoe and Gavin Finch
Standard Chartered Plc, the British lender fined $667 million for breaking sanctions on Iran, said first-quarter operating profit declined “slightly” as income at its wholesale unit shrank.
Growth in income at the consumer bank helped to offset the “mid single-digit” percentage decline at the wholesale bank, which provides financing to corporate clients, the London-based company said in a statement today. The lender is alone among Britain’s five biggest banks in not reporting full quarterly figures. The stock fell 4.4 percent to 1,625 pence in London trading, its steepest drop since August.
The wholesale division, which generates most of the bank’s profit, includes trade finance, lending to companies and some investment-banking services. Full-year revenue may still increase by 8 percent, short of the bank’s annual target of 10 percent, Finance Director Richard Meddings told reporters on a conference call today, as growth in Hong Kong and Africa was eroded by weaker income in Korea and Singapore.
“The weakness seen in” the first quarter “was rather broad based, with both consumer banking and wholesale banking showing falling profit,” Patrick Lee, an analyst at RBC Europe with a sector perform rating on the stock, wrote in a note to clients today. “It would take a very robust recovery to deliver the near-double-digit profit before tax growth after the falling operating profit in” the first quarter.
“Stanchart will surely grow this year, but it remains to be seen whether they can achieve their double-digit targets,” said Sandy Mehta, chief executive officer of Value Investment Principals Ltd. in Hong Kong, which doesn’t own shares in the lender. “The year is off to a slow start so some catch-up will be required.”
Meddings said he is still comfortable the consensus analyst estimate for full-year pretax profit of $8.2 billion. The bank said it started the second quarter well, with income in April “back at trend levels,” according to the statement.
“Last year we produced revenue growth of 8 percent and we’ll see. It may be that we’ll be more likely to be at that level” for this year, Meddings said. “But at this stage I’d like to see May and June before we give proscriptive guidance.” The bank will keep a tight grip on costs after hiring 560 people in the quarter, he added.
Western monetary policy has squeezed profit margins in Asia, Meddings said. Federal Reserve Chairman Ben S. Bernanke has injected more than $2.3 trillion into the financial system since 2008. The Fed is currently buying $85 billion of debt each month under a policy of so-called quantitative easing.
There’s “greater pressure on margins and spreads and it basically comes from the U.S. monetary policy,” Meddings said. “The key anxiety would be to watch for is the impact of western monetary policy across Asia.”
“The issue facing all of the strong global banks, such as Standard Chartered, is how to make more money in poor-to-middling economic times,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd., who has a buy recommendation on the shares. The lender “is a very liquid bank, and this gives Standard Chartered limited ways to invest that excess liquidity and earn a decent return.”
In August, Standard Chartered was accused by Benjamin Lawsky, head of the New York Department of Financial Services, of helping Iran launder about $250 billion in violation of federal laws, keeping false records and handling lucrative wire transfers for Iranian clients.
Chairman John Peace was forced by U.S. regulators to apologize for claiming breaches of sanctions on Iran that led to the fine were unintentional. Peace, who told reporters at a March 5 press conference that the firm had no “willful” intention to dodge U.S. rules, said in a statement on March 21 that the earlier claim was “wrong.”
The firm “accepts and acknowledges responsibility for its misconduct” that led to the fines, Peace told shareholders today at its annual meeting.
HSBC Holdings Plc, the other U.K. bank that gets most of its earnings in Asia, yesterday posted a bigger-than-estimated increase in first-quarter profit after provisions for bad loans shrank. Pretax profit increased to $8.43 billion from $4.32 billion a year earlier. Standard Chartered’s stock has gained 3.3 percent this year compared with HSBC’s 14 percent increase.
“Standard Chartered has a more coherent franchise worldwide” and “has been more effectively managed in recent years,” Antos at Mizuho said. “But this year if you want to make money on bank stocks, you have to look at HSBC first. The market loves a recovery story.”