Standard Chartered chief Bill Winters is proving he has a better a handle on the bank’s balance sheet than predecessors. The unfashionable Asia-focused lender beat expectations, even as it reported a 40 per cent drop in second quarter pre-tax profits to $733m. Mr Winters still has a long way to go to convince detractors.
StanChart’s presence in such fast-growing places as south-east Asia and India played a part. Income growth in the latter grew 44 per cent. Indonesia added over a third. Fat trading fees offset the impact of low interest rates. Lockdowns accelerated digital adoption, saving costs.
Mr Winters’ conservative approach to the balance sheet is right. He has delivered “positive jaws” — revenues growing by more than expenses — of 7 per cent, with the figure for Europe and Americas reaching 45 per cent. StanChart’s common equity tier one ratio of 14.3 per cent — which rose 90 bps from the previous quarter — exceeded targets. The bank is less exposed to bad loans than some local peers.
Still, by global standards, StanChart’s performance is weak. Its return on tangible equity last year of 6 per cent was almost half that of peers like Goldman Sachs. Substantial credit impairment charges, which more than tripled to $611m, have offset the effects of cost cutting across all its businesses. On a constant currency basis, reduction in expenses stood at just 2 per cent.
Moreover, an improvement in net interest margins — which fell by a 10th — cannot be expected this year. StanChart bears a legacy of inefficiencies. Countries like India, which had a late start on the pandemic outbreak, cannot be counted on for sustained growth.
Much of that has been priced into shares which have fallen 40 per cent this year. At a rock bottom 0.3 times book value, the shares trade at a discount of a third to peer HSBC and nearly three-quarters to its own five-year average. Mr Winters must cut costs harder and faster to close the gap.
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