Standard Chartered Set to End Decade of Record Earnings

Standard Chartered Plc, the U.K. lender that makes about three-quarters of its earnings in Asia, may end 11 years of record profits as a loss at the Korean unit undermines revenue at the consumer-banking division.

Consumer-banking operating profit will drop at least 10 percent this year, while revenue is seen increasing “at a low single digit rate” in 2013, the London-based bank said in a statement today, without giving details. At the wholesale banking division, the largest, as well as on a group level, full-year revenue will probably remain “broadly flat” in 2013.

“We’re signaling that Korea’s income will be down by about 15 percent this year and that in consumer banking in Korea, we’ll make a loss approaching $200 million,” Chief Financial Officer Richard Meddings told reporters on a call today. “We’ve got income now flat, we’ve got costs slightly up, we’ve given a clear guidance on impairments. The maths are fairly evident,” he said, when asked about the bank’s 2013 earnings.

The shares closed at 1,338.50 pence in London, down 6.5 percent on the day. That’s the biggest drop since August 2012. The stock has declined about 15 percent this year, making it the worst performer among Britain’s five largest lenders.

Korean Business

Standard Chartered last reported a drop in pretax profit in 2001. The bank, which doesn’t provide a quarterly earnings breakdown, earlier this year scrapped its target of at least 10 percent revenue growth for the full year and wrote down the value of its Korean unit by $1 billion in the first six months.

The lender said it made a $50 million provision to sell its Korean consumer-finance businesses. Still, Meddings, 55, reiterated that the bank remains committed to Korea.

“If you looked at consumer banking without Korea, it’s income and profit both up by single digits,” he said. “It’s really a consequence of the reshaping stance we’re taking.”

Standard Chartered in August posted a 24 percent drop in first-half profit to $2.18 billion. It said at the time that Korea’s personal debt rehabilitation program had spurred a jump in loan impairments. The lender’s net interest margin “is slightly down” from 2012, while a depreciation in currencies such as the Indian rupee against the dollar may reduce revenue and profit growth by about 1 percent, it said.

‘Annus Horribilis’

In Hong Kong and Africa, the bank reported revenue increasing “at a double digit rate” from a year earlier.

“2013 has been Standard Chartered’s annus horribilis,” Ian Gordon, an analyst at Investec Plc in London with a buy recommendation on the shares, wrote in a note today. “Strength in Hong Kong and Africa has offset weakness in Korea and India, exacerbated by adverse foreign exchange.”

Costs will rise by a “low single digit percentage” following “significant increases” in regulatory and compliance expenses and a one-time tax related to costs in Korea of about $60 million, the bank said. In the second half, the level of impairments is seen exceeding the first six months.

Standard Chartered was fined $667 million by U.S. regulators last year for breaches of U.S sanctions on Iran.

“We are responding to near-term challenges to ensure we strike the right balance between growth and returns, and have successfully managed costs tightly in light of the pressures on income,” Chief Executive Officer Peter Sands said in the statement. We remain “confident in the potential of our markets,” he said.

Sands said on Nov. 11 that the lender will review its businesses to cut back or withdraw from less-profitable markets. The bank left consumer banking in Japan last year and is selling a similar business in Lebanon, according to the CEO.

Other U.K. banks are also selling businesses and reducing costs. Stuart Gulliver, CEO of Asia-focused HSBC Holdings Plc, plans to cut an additional $3 billion of expenses after beating an earlier cost target. He has closed or sold 60 businesses and eliminated 46,000 jobs since the start of 2011.

-- Editors: Simone Meier, Jon Menon

Before it's here, it's on the Bloomberg Terminal.