Standard Chartered profit misses estimates on revenue drop
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London: Standard Chartered Plc reported third-quarter profit that fell short of analyst estimates as revenue declined at all four of its divisions.
Adjusted pretax profit was $458 million compared with a loss of $139 million a year earlier, the London-based lender said in a statement on Tuesday. That missed the $520 million average estimate of six analysts surveyed by Bloomberg. The stock dropped as much as 4.7%, the most since June.
Chief executive officer Bill Winters is looking to show he’s stemmed the bank’s losses and is on the way to restoring the dividend, after a sharp drop in revenue and surging loan impairments last year drove the Asia-focused lender to its first annual loss since 1989. In August, the bank said it would probably miss a future profitability target set only last year because of an uncertain regulatory and economic environment.
The bank is “becoming more efficient, but income and profit levels are not yet acceptable”, Winters, 55, said in the statement. Standard Chartered said it expects the market environment to remain challenging.
Revenue fell 5.9% to $3.47 billion. Corporate and institutional banking, its largest division, posted a 7.5% drop in revenue, while retail banking fell 1.1%.
Statutory pretax profit, which included $141 million of restructuring costs, fell 64% to $153 million in the third quarter. Operating expenses declined 4.5% from a year earlier to $2.39 billion, and the company said it remained on track to deliver more than $1 billion in cost cuts this year.
The shares fell 3.8% to 684.9 pence at 8.54am in London. The stock has climbed 26% this year through Wednesday’s close, the most among major European lenders. Standard Chartered and HSBC Holdings Plc, which both get most of their profit in Asia and report in dollars, have gained since Britain voted to leave the European Union, while other large UK lenders have declined. Even so, Standard Chartered still trades at about 40% less than its book value after plunging 39% in 2015.
Losses on bad loans and other investments fell by more than half to $660 million in the quarter, according to the filing. That was more than the $612 million analysts had estimated. In 2015, impairments surged to a record $4 billion when the commodity market crashed and growth stalled from China to India.
Standard Chartered said its common equity Tier 1 capital ratio, a measure of financial strength, fell to 13% from 13.1% at the end of the first half. That was less than the 13.3% analysts expected. The bank said its restructuring efforts should add 50 basis points to the measure in the fourth quarter, though other factors remain “headwinds.”
Winters has been shrinking the balance sheet and tightening lending standards after taking over in 2015 for Peter Sands, who spent eight years in charge. Winters has replaced several senior executives and cracked down on ethics within the bank after discovering some employees were acting “ above the law.” He has also raised capital, suspended the dividend, cut 15,000 jobs and is restructuring or selling $100 billion of risky assets.
The bank’s board is also deciding whether to sell its private-equity division to its managers, people familiar with the matter said last month. Winters is leaning toward spinning off the unit to reduce risk and has concerns over potential conflicts of interests that arise from being both an equity holder and a lender to companies, one of the people said.
In August, the bank said it would likely take longer to reach its profitability goals. It had been aiming for an 8% return on equity by 2018, rising to 10% by 2020.
Standard Chartered said on Tuesday that the Hong Kong Securities and Futures Commission “intends to take action” against the bank for its role in an initial public offering in the city in 2009.
The bank is still under the scrutiny of an independent monitor as part of a 2012 deferred prosecution agreement, when it was fined $667 million for violating US sanctions by engaging in $250 billion in transactions with Iran. It was also faulted by Singapore’s central bank in July for lax anti-money laundering controls related to Malaysia’s investment fund, 1Malaysia Development Bhd. Bloomberg