Standard Chartered Plc raised its forecasts for income growth for 2023 and doubled down on share buybacks as rising interest rates propelled earnings.
(Bloomberg) — Standard Chartered Plc raised its forecasts for income growth for 2023 and doubled down on share buybacks as rising interest rates propelled earnings.
The bank reported a 27% rise in adjusted pretax profit for second quarter to $1.6 billion, according to a statement. The results exceeded the $1.39 billion Bloomberg-compiled analyst estimate and marked the best first half performance by the lender since Bill Winters took over as chief executive officer in 2015.
Standard Chartered, which announced a fresh $1 billion buyback program, now expects income for 2023 to rise 12% to 14%, up from 10%. Its profits were boosted by a strong performance in transaction banking amid rising rates and trading.
The lender said its macro and credit traders had enjoyed a record quarter, while the low passthrough rate of interest rate hikes to savers led to a more than doubling in income from its deposit base.
Shares in Standard Chartered rose 5.6% at 8:26 a.m. in London.
Rate hikes have been a general boon for the banking industry. In April, Standard Chartered reported its largest quarterly profit since the first quarter of 2014 as rising rates boosted its bottom line. The lender also benefited from an economic rebound in Asia as the region’s markets exited from Covid lockdowns.
“We have much further that we can go and what I’m most encouraged by after a strong first half like this is when I see the underlying potential of this business I think we can safely say that we have just scratched the surface,” Winters said on a call with reporters Friday.
What Bloomberg Intelligence Says:
Standard Chartered’s combination of a $1 billion buyback and a slight improvement in 2023 guidance for return on tangible equity (10% vs. near 10%) are favorable signals for sentiment. Updated revenue growth to 12-14% from 10% (also projected by consensus) means operating jaws (revenue less cost growth) should remain positive (6% at 1H) amid inflationary pressure. China real estate and sovereign-debt exposure are major sources of cost-of-risk volatility.
— Tomasz Noetzel, BI banking analyst
The lender said it expected its return on tangible equity to be 10% for the full year, an improvement from “approaching 10%” guidance previously, reflecting its “confidence” in the business.
Investors in the emerging markets-focused bank were given a strong hint on its performance last month by Saleem Razvi, chief financial officer of Standard Chartered in Asia, who said at a Goldman Sachs Group Inc. conference that the bank’s financial markets unit, which incorporates its trading operations, would be up from the same period last year. Razvi had also forecast an increase in income from the lender’s wealth management unit.
Cost Control
Despite the growth, Standard Chartered has remained focused on keeping a lid on costs. The bank plans to cut costs by more than $1 billion through 2024 and in June embarked on selected layoffs of staff in Singapore, London and Hong Kong. Bloomberg Intelligence analysts said this month that delivering on costs was key to the bank meeting its target of a 10% return on tangible equity this year.
However, Winters played down the need for further job cuts in an interview with Bloomberg Television saying the bank had hired “thousands” of people in the last year. “Net, net this is a growth story,” he said.
Attention focused on the bank at the start of the year after Bloomberg reported that First Abu Dhabi Bank PJSC had explored a potential bid for the company. FAB said in February it had considered an offer, but was not currently doing so meaning it could not make a takeover approach for six months, except under certain circumstances. This period expires next month.
“We have no reason to think they will come back,” Winters said. “But, of course, they can’t speak to us and they haven’t spoken to us.”
–With assistance from Lizzy Burden.
(Updates throughout with CEO comments, details of performance)
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