News Column

3RD UPDATE: Standard Chartered Operating Profit Hit By Forex, Korea

May 8, 2014

Samuel Agini

LONDON (Alliance News) - Standard Chartered PLC Thursday said its first-quarter operating profit fell by a high single-digit percentage due to difficult market conditions, a weak performance in Korea as the business there is scaled down, and the weakness of emerging market currencies including the Indian rupee and the Indonesian rupiah.

In a statement, the emerging markets-focused bank said the drop in operating profit was in line with expectations. On a constant currency basis, first-quarter operating profit fell by a mid single-digit percentage, according to the lender.

Income was down by a low single-digit percentage, though slightly higher on a constant currency basis, with tough market conditions remaining through April and continuing in May, though "current momentum" is ahead of the second-half of 2013, the bank said. Expenses were managed "tightly" and were flat on the same period last year, Standard Chartered said.

Outgoing Finance Director Richard Meddings told reporters that the bank has seen a slight increase in headcount in the first-quarter, but noted the quarter doesn't normally see much change.

Pressure remains on Standard Chartered's financial markets business, with income down 16% year-on-year and the lender pointing to the interest rates part of the business as the main reason. In a conference call with journalists, Meddings said the rates business has been impacted by lower volume of activity "true across emerging markets" but also from structural pressures from changing regulation.

Overall, the bank said growth across a number of markets was offset by weaker performances in other markets, particularly in Korea, where it is trying to shrink the business and reduce costs. Excluding Korea, group income was flat on the year. Standard Chartered said income in Korea was down by about USD110.0 million year on year amidst the reshaping of the business.

Loan impairment is up by a low single-digit percentage, according to the bank, with "no new areas of material pressure."

In addition, Standard Chartered said margins have stabilised but remain at compressed levels.

Despite its troubles, Standard Chartered said customer loans and advances have increased by a single-digit percentage on the end of 2013, describing the growth as "disciplined." Growth in group risk-weighted assets on a Basel III basis was broadly in line with growth in customer loans and advances. Customer deposits remained in line with year-end levels, it said.

Standard Chartered's earnings have been under pressure because of concerns around emerging markets, while a writedown in its Korean business meant it reported a decline in annual pretax profit for 2013 in early March. The decline came after a decade of growth in pretax profit.

The bank Thursday said it has completed the restructuring it announced in January, when it announced that it would integrate its wholesale and consumer banking divisions. The integration was announced alongside the surprise departure of Meddings himself, who Thursday told journalists that "good progress" is being made with the hunt for his successor.

Consumer banking income was down by a mid single-digit rate on the comparable period of 2013, while wholesale banking income was flat.

"Despite a somewhat challenging external environment, we continue to support our clients’ growth, whilst managing tightly our costs, risks and capital. Our performance so far this year is in line with our expectations," Peter Sands, chief executive, said in a statement.

The bank said its commentary on first-quarter performance excludes the cost of the UK's bank levy, estimated to be around USD350.0 million for the whole of 2014, as well as adjustments to its own credit.

Standard Chartered reported a day after emerging markets rival HSBC Holdings PLC reported a 20% drop in first-quarter pretax profit, driven by a weak performance in Asia, Latin America and in its investment bank, which was only partially offset by lower impairment charges and continued cost cutting.

Standard Chartered shares were Thursday quoted at 1,302.50 pence, up 1.7%.

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Source: Alliance News

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