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Standard Chartered shares fell sharply after it reported disappointing third-quarter profits, taking almost $900mn in charges linked to its exposure to China and warning that its lending margins were narrowing as global interest rates started to peak.
The UK-based lender said pre-tax profits were $1.3bn in the three months to September, falling short of analysts’ expectations of $1.4bn and slightly below the figure a year earlier.
Shares fell as much as 12.8 per cent in London after the results were published on Thursday, erasing all the gains the stock had made so far this year.
“Investors were expecting a clean set of numbers . . . and we do not have that today”, said Joseph Dickerson, an analyst at Jefferies. He flagged credit impairment charges of $294mn — more than the $230mn that analysts expected — of which $186mn was linked to a slowdown in Chinese commercial property.
The bank now has $1.1bn set aside to cover potential loan losses in that sector. Chinese economic growth is being weighed down by a property crisis that started two years ago with a default by Evergrande, the world’s most indebted property developer.
StanChart took a separate $700mn impairment charge on its investment in China Bohai Bank, a mainland lender in which it owns a 16 per cent stake.
“Generally speaking it [Bohai] has performed well” over the decade since StanChart invested, chief financial officer Andy Halford said, but “in the last couple of years it has been weaker”.
The lender warned that its closely watched net interest margin — the difference between the interest received on loans and the rate paid for deposits — would grow more slowly than expected.
“Longer-term our worry is on the revenue trajectory in late 2024 and 2025 once Fed rates peak and begin to decline,” said Citigroup’s Andrew Coombs. “There is also no incremental capital return announcement today, even though $1.8bn of the existing $2bn buyback is already completed.”
StanChart is based in the UK but makes most of its profits in Asia, particularly Singapore and Hong Kong. Profits in Asia were flat in the third quarter and rose in Africa and the Middle East, but the bank made a loss in its business in Europe and the Americas.
The lender’s revenues were $4.4bn in the third quarter, up from $4.1bn during the same period last year but falling slightly short of analysts’ estimates.
The results come as other European banks such as Deutsche Bank and Santander report better than expected quarterly earnings, driven by interest rate increases by central banks that have boosted margins.
StanChart’s return on tangible equity — a key measure of profitability — fell to 7 per cent, down 2 percentage points from a year earlier, a decline that the bank attributed to a higher tax charge.
The bank’s chief financial officer for the Americas, Shaun Taylor, wrote in May that investors commonly expected a figure of more than 10 per cent.
At the start of the year StanChart was subject to takeover speculation after it was reported that First Abu Dhabi Bank was considering a bid, which it decided not to pursue. Halford said the bank has had “no contact” with FAB since August, the end of a cooling-off period required by UK takeover rules that prevented it from considering another attempt.
StanChart’s shares trade at a steep discount to the book value of its assets, and with a market value of just £17bn it has become an affordable takeover target for some rivals.
StanChart said in August it had agreed to sell its aviation finance leasing business for $700mn to Saudi Arabia’s Public Investment Fund. The bank said the cash would increase its CET1 ratio, a measure of a bank’s financial strength, by 19 basis points in the fourth quarter of the year.
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