StanChart keeps lid on costs, heads for record profit

StanChart keeps lid on costs, heads for record profit

Hong Kong/London: Staff cuts coupled with growth in Hong Kong and other key Asian markets have put Standard Chartered Plc on track for record profits in the first half of this year, up over 10% on a year earlier.

The Asia-focused bank on Tuesday said income and profit were up over 10% in the first five months of the year and cost growth would be broadly in line with income growth in the first half.

“It’s a very positive statement and an improvement on the Q1 stage, as they’ve clearly improved the situation on the cost to income line," said Mike Trippitt, analyst at Oriel Securities in London, keeping a “buy" stance on the stock.

By 0730 GMT Standard Chartered’s London shares were up 1.6% at 15.64 pounds, outpacing a 0.8% rise by the European bank index .

Cost growth rising faster than income growth, known as “negative jaws", has dogged StanChart for the past year as it battles rivals such as HSBC Holdings Plc to keep and retain talent in key fast-growing Asian markets such as China and Hong Kong. Analysts had expected costs to outpace income again in the first half and be broadly flat for the full year.

Finance director Richard Meddings said the bank had cut 1,300 staff in the first five months of the year, after adding 7,000 staff last year to give it 85,000 employees.

Investment and hiring will pick up in the second half, he said, resulting in a net increase in staff for the full year in line with previous guidance of a 1,000 rise or slightly fewer.

“We have a relatively high attrition rate consistent with the financial services industry, so when people leave us we are able to manage the pace at which we rehire," Meddings told reporters on a conference call.

“We will accelerate investment in the second half," he added, aiming to keep cost growth in line with income growth for the year.

Meddings said the London-headquartered bank, which makes over four-fifths of its profit in Asia and other emerging markets, would keep its capital level “above the fray" of minimum global standards, and remained a net provider of liquidity to the interbank market.

But it has withdrawn liquidity provided to euro zone banks in the last 18 months as the region’s problems have deepened, and directed the funds back to Asian clients.

Meddings said a UK bank levy was likely to cost $190 million this year and the bank assumed a $95 million cost in the first half, even though it was unlikely to account for the levy until later in the year.

A strong performance in Hong Kong, Singapore, Malaysia, China and Indonesia helped offset a weaker showing from India — which was its biggest market last year — and Africa, the bank said.

Standard Chartered is expected to make a profit of $6.9 billion this year, up 13% from $6.1 billion last year, according to the average of 22 analysts polled by Thomson Reuters. That would mark a ninth successive year of record profit.

Its London-listed shares are down 9% this year, valuing the bank at about 37 billion pounds. Its shares have fallen from its all-time high of £19.75 in November on worries about rising costs and as its shares trade a significant premium to most rivals.