Standard Chartered reported a 7% rise in second-quarter income to $4.8bn, ignoring currency impacts, which was in line with expectations. Performance was weighted toward non-interest income, which includes areas like wealth management and investment banking. Though interest income was also higher.
Underling profit before tax rose 15% to $1.8bn. That was well ahead of the $1.6bn markets were expecting, largely due to better-than-expected credit impairments of $73mn.
The group’s CET1 ratio, a key capital measure, was 14.6% at the end of the period (target 13-14%). The $1bn announced in February has been completed and a new $1.5bn buyback will begin. An interim dividend has also been announced, up 50% to 9 cents per share.
Guidance has been raised, now expecting income growth above 7% for the year (previously at the top end of a 5-7% range).
The shares rose 5.6% in early trading.
Our view
Standard Chartered delivered another strong quarter with lower impairments driving the profit beat. The real nugget for investors was the new $1.5bn share buyback, supported by better-than-expected capital levels. Considering analysts were only expecting $1.8bn of buybacks over the entire year, this was a good surprise.
Medium-term guidance out to 2026 shows promising signs. Volume growth, cost cuts and a benefit from the structural hedge are expected to help deliver a return on tangible equity of 12% in 2026 (2023: 10%). Markets have begun to price in that outcome, but we think there’s still some risks as its highly reliant on strong growth from non-interest income.
Standard operates a sprawling business, both geographically and in terms of product ranges. Domestic Chinese exposure, especially in the commercial real estate sector, while a small part of the pie has been in focus. Asian-focused banks like Standard and HSBC have both had to write down the value of Chinese assets in past quarters. Investors will be pleased to see no real uptick in impairments taken here over the second quarter.
Performance last year was heavily weighted towards interest income. But it's not UK rates that have moved the dial. Higher rates in key areas like Hong Kong and Singapore have been providing a tailwind. Rates are expected to come down, but there should be enough of a tailwind from asset growth, hedge income and a benefit from clients switching back to shorter-term deposit accounts.
Income from fees and trading is also vital, and likely to be the side of the business driving growth over the second half. Standard has spent several years investing in the Financial Markets and Wealth Management divisions to help drive income that’s a little less dependent on interest rates. These divisions are also less capital intensive which gives a little more wiggle room for things like buybacks – though none are ever guaranteed.
There is a path to rerating if new medium-term guidance is taken at face value, and the balance sheet’s in a good place. Management has done a decent job of spelling out the moving parts, but there’s a big difference between plans and reality. We think the sprawling footprint could do with some streamlining and prefer some of the more focused names in the sector.
Environmental, Social and governance (ESG) risk
The financials sector is medium-risk in terms of ESG. Product governance is the largest risk for most companies, especially those in the US and Europe with enhanced regulatory scrutiny. Data privacy and security are also an increasingly important risk for banks and diversified financial firms. Business ethics, ESG integration and labour relations are also worth monitoring.
According to Sustainalytics, Standard Chartered’s management of material ESG issues is strong.
Standard’s strong programs and policies are offset by involvement in multiple controversies, reducing its management score. However, the bank has improved disclosure in areas like data privacy, security, and product governance. It introduced external cybersecurity assessments designed by the Bank of England and Prudential Regulation Authority, and has management in place to ensure responsible product offerings. Improvement areas include lack of transparency in gender pay, high employee turnover, and poor integration of ESG into asset management.
Standard Chartered key facts
All ratios are sourced from Refinitiv, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
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