Standard Chartered misses profit expectations as impairments mount up

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Standard Chartered PLC (LON:STAN) posted pre-tax profits short of market expectations after credit impairments more than doubled from the year before.

Statutory profit before tax in 2020 fell 57% to US$1.61bn from US$3.71bn in 2019, versus analysts’ expectations of a profit of US$1.85bn.

The credit impairment charge soared to US$2.32bn from US$908mln the previous year, with US$374mln of that coming in the fourth quarter, slightly up quarter-on-quarter.

Interest income slumped to US$12.29bn from 2019’s US$16.55bn while net interest income dropped to US$6.85bn from US$7.67bn.

Transaction Banking income was down 19% year-on-year but the Financial Markets division saw income grow 18%.

Corporate Finance income was 2% lower than in 2019; Lending and Portfolio Management income rose 8%; Wealth Management income expanded 5%; Retail Products income declined 8% and Treasury Income fell 42%.

The common equity tier 1 (CET1) ratio, which measures the strength of a bank’s balance sheet, was unchanged from the third quarter at 14.4% and above the top end of the 13-14% target range.

Dividends are back on the menu for London-listed banks and Standard Chartered has resumed dividend payments with a nine cents pay-out.

The Asia-focused bank said improving prospects for COVID-19 vaccines should enable the global economy to move back to growth as 2021 wears on, with pre-pandemic growth rates re-emerging in most of its markets from 2022.

Overall income in 2021 is expected to be similar to that achieved in 2020 on a constant currency basis given the full-year impact of the global interest rate cuts that occurred in the first half of 2020 (1H20), which will likely cause 1H21 income to be lower than last year, the bank said.

The bank added that the full-year net interest margin should stabilise at marginally below the level of 1.24% seen in the final quarter of 2020.

“Our performance in the opening weeks of this year gives us the confidence that we are on the right track with strong performances in our less interest-rate-sensitive Financial Markets and Wealth Management businesses. We expect income to return to 5-7% growth per annum from 2022,” Standard Chartered said.

“We are weathering the health crisis and geopolitical tensions very well, our strategic transformation continues to progress and our outlook is bright. We remain strong and profitable, although returns in 2020 were clearly impacted by higher provisions, reduced economic activity and low-interest rates, in each case the result of COVID-19,” said Bill Winters, the chief executive officer.

“Looking ahead, our unique exposure to the most dynamic markets in the world puts us in a great position to benefit from the clear signs of recovery there.

“Refreshed strategic priorities support our commitment to reaching 10% RoTE [return on tangible equity] in the medium term,” Winters added.

JPMorgan said the bank’s fourth-quarter adjusted profit before tax was in line with the consensus forecast.

“Overall, guidance implies limited net change to the consensus EPS [earnings per share] for 2021 but upside over the medium term,” the broker said.

The dividend of 9 cents in conjunction with the share buyback of US$254mln is equivalent to 17 cents in total, which is above the consensus forecast of 13.9 cents.

Shares in Standard Chartered were down 5.5% at 481.6p.


— adds broker comment and share price reaction —

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