Standard Chartered boosts share buybacks after beating profit expectations

Receive free Standard Chartered PLC updates

We’ll send you a myFT Daily Digest email rounding up the latest Standard Chartered PLC news every morning.

Rising interest rates and strong trading performance propelled Standard Chartered to a better than expected second quarter, with the bank’s pre-tax profit rising 27 per cent.

Profit increased to $1.6bn in the period, the London-based bank said on Friday, beating analysts’ expectations of $1.4bn. It also announced a $1bn share buyback scheme, adding to an existing programme of the same size, and boosted its dividend.

StanChart is the latest global lender to benefit from rapid interest rate increases by central banks around the world, with the US moves of particular significance for the emerging-market and trading-focused bank given its primary currency is the dollar.

While based in the UK, it makes most of its profits in Asia, in particular Singapore and Hong Kong, where quarterly income rebounded 45 per cent and 30 per cent respectively as the Chinese economy reopened following strict lockdowns under its zero-Covid policy.

Overall revenues rose 20 per cent to $4.6bn, narrowly beating consensus expectations of $4.4bn, driven by a record performance for the investment bank trading unit and a return to growth for its wealth management division.

Chief executive Bill Winters brushed off signs that economic momentum had slowed in China, where gross domestic product rose just 0.8 per cent in the second quarter compared with the previous three months as it embarked on a “tortuous” recovery from the coronavirus pandemic.

“The economic attractiveness of Asia is as strong as ever,” he said. “For 2023 and 2024 we expect the rate of [gross domestic product] growth in Asia . . . to be more than double that in the US and Europe.”

StanChart shares rose 5.2 per cent on Friday but still trade at a steep discount to the book value of its assets.

Winters — one of the longest-serving bank chiefs, now in his eighth year in charge — said the depressed valuation was “not consistent with our view of the earnings potential of the business” and that investors wanted to see the bank “not just sustain but continue to grow” earnings as the disruption of Covid fades.

The bank took credit impairments of $146mn, mostly driven by an $84mn charge relating to the Chinese commercial real estate sector. However, the total was well below analysts’ expectations of $260mn.

It also increased its revenue and profitability forecasts for the full year. The bank now expects revenue to grow 12-14 per cent on a constant currency basis in 2023, up from 10 per cent, and to achieve return on tangible equity of 10 per cent.

Andy Halford, chief financial officer, said the bank was “well on track to exceed” the $5bn shareholder distributions target set for the end of 2024, opening the door to it being increased.

Citigroup analyst Andrew Coombs praised “an impressive set of results”, in particular the larger than estimated buyback. But he still views the lender as a neutral to high-risk investment, saying: “Our concern is more on the revenue trajectory in 2024 once Fed rates peak and begin to decline.”

Despite its $839bn in assets, StanChart has a market capitalisation of only £21bn, making it an easily affordable asset for increasingly ambitious and deep-pocketed competitors across the Middle East and Asia.

First Abu Dhabi Bank said in early January that it had considered a bid for StanChart but did not make a formal offer. It is now prevented from making an approach under UK takeover rules until mid-August.

When asked whether the Middle Eastern lender would return to make a bid when the cooling-off period ends, Winters said he did not have any contact with the leadership of FAB and that “we know as much as you do on this one”.

StanChart’s largest shareholder is Singapore’s state-owned investment fund Temasek, and any takeover would probably require their support.