When the streets of Hong Kong were filled with protesters last year, being an Asia-focused lender bank did not sound very appealing. This year, it has helped UK-based Standard Chartered beat earnings expectations, even as it reported a 40 per cent drop in third quarter pre-tax profits to $745m.
Chief executive Bill Winters struck an upbeat tone, saying that a return to dividends may be possible. China and the rest of Asia were a stable source of income. Credit impairments of $353m in the latest quarter were well below expectations, adding to hopes they may normalise earlier than feared. Mr Winters has delivered on a stronger balance sheet — the common equity tier one ratio of 14.4 per cent is significantly better than last year.
Yet investors were unconvinced. StanChart’s London-listed shares fell 5 per cent on Thursday, reflecting a 450 basis points plunge in underlying return on tangible equity to 4.4 per cent. The previous target of 10 per cent will take much longer to reach.
Worse, a recovery in StanChart’s wealth management and its financial markets unit was more than offset by a 38-basis point decline in net interest margin. It is unlikely to be the last quarter the bank struggles with margin pressure. Profits from Europe, Middle East and the Americas are on a downward trend.
Most of those have been priced into the shares, which have halved this year. At less than one-third their book value, StanChart trades at a discount of more than 30 per cent to peer HSBC and less than half that of BOC Hong Kong. Its focus on wealth management in Asia, where demand has stayed resilient, and plans to establish a brokerage business in mainland China add some growth potential.
The historic anomaly of the bank’s London listing exposes it to Europe’s restrictive politics and regulation. But at least the focus of the group on Asia and the developing world gives Mr Winters a better shot at decent profits than rivals dependent on Europe’s stagnant economies.
FT Health
Sign up to the monthly FT Health newsletter — the essential briefing for decision makers on global health.