StanChart income growth slows, turmoil hits deals

Monday, 12 December 2011 00:00 -     - {{hitsCtrl.values.hits}}

HONG KONG/LONDON, (Reuters): Standard Chartered Plc warned its income growth will be “just below” its 10 per cent target this year as the euro zone debt crisis slows deal activity in its key Asian markets, adding to problems in India and Korea.

The bank said on Thursday it expects pre-tax profit to still rise by at least 10 per cent this year, however, helped by a strong performance in emerging markets such as Singapore and Hong Kong. It expects to report record profit and income. Standard Chartered said that although it had “a strong pipeline in difficult market conditions”, income in 2011 is now expected to grow at just below 10 per cent, compared with 11 per cent in the first half of the year.

A depreciation in Asian currencies has hurt income, which is reported in US dollars, while India and South Korea continued to perform poorly.

“The shine has come off a little with the foreign exchange translation. But it’s still a very good story, you’ve got the combination of growth with capital strength and liquidity,” said Mike Trippitt, an analyst at Oriel Securities in London.

A 2-5 per cent depreciation in Asian currencies versus the dollar since August has depressed income by about $200 million and will hurt profits by $30-40 million, Finance Director Richard Meddings estimated.

Wealth management and corporate finance businesses had been impacted by the difficult markets, the bank said.

“As market conditions have remained difficult this has impacted on deal execution, although we expect any deals not closed out in 2011 will be closed out in early 2012,” Meddings said on a conference call.

Full-year income in India will be down on 2010, hurt by a tough local business environment, Standard Chartered said.

In South Korea, which was hit by a labour dispute earlier this year, performance was muted in the second half, it added.

The bank has started a restructuring programme there that will cost about $50 million or more, depending on the level of participation.

However, Standard Chartered said cost growth should be less than its income growth this year. The Asia-focused bank, one of the few still hiring while the bulk of the industry shrinks, expects to add about 2,000 net new staff this year, confirming comments made by Meddings to Reuters last week. About 1,600 of those will be in retail banking – half in China and others in Hong Kong, Malaysia and Nigeria. The bank’s outlook is in line with industry expectations, with a poll of 25 analysts surveyed by Thomson Reuters I/B/E/S expecting a 12 per cent increase in pre-tax profit to $6.8 billion this year. That would mark a fivefold rise over the last decade. That has seen Standard Chartered leapfrog big names such as Barclays Plc and Deutsche Bank in terms of market value to rank behind arch-rival HSBC and Santander, with a market capitalisation of $50 billion.

The bank, which provide few specific figures in its trading updates, said Singapore, Hong Kong, China, Botswana, Bangladesh, Pakistan and Indonesia all recorded income growth of more than 10 per cent and it sees particular opportunities in wholesale banking as its European rivals retreat from Asia.

The bank, which started life financing trade between Europe and Asia and Africa in 1853, expects its wholesale bank to drive future growth.