Standard Chartered plc (STAN) Ordinary US$0.50

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Standard Chartered reported a 12% rise in second-quarter income to $4.9bn ($4.7bn expected), ignoring currency impacts. 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 41% to $2.1bn ($1.6bn expected), driven by record performance from the Wealth division and strong trading growth in Global Markets.

The group’s CET1 ratio, a key capital measure, was 14.2% at the end of the period (target 13-14%). Over 60% of the ongoing $1.5bn buyback has been completed.

Guidance has been raised, now expecting income growth toward 10% for the year (previously 7%).

The shares rose 3.5% in early trading.

Our view

Standard Chartered delivered another strong quarter with strong performance from the Wealth and Markets divisions, akin to what we’ve seen from peers.

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 approaching 13% 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 more volatile 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 recent history. Investors will be pleased to see no real uptick in impairments taken here over the last couple of quarters.

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 that offer better return profiles.

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.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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