Surprise gain for Standard Chartered

Nick Goodway12 April 2012

STANDARD Chartered surprised the City today with an unexpected 1% rise in pre-tax profits in the first half. Having restated last year's numbers, the bank came up with marginally higher pre-tax figures of $634m (£411m) when most analysts had forecast a drop to about $580m.

Chief executive Mervyn Davies said the emerging markets bank had a firm control on costs and, despite the global economic uncertainty, particularly in Hong Kong, he felt cautiously optimistic for the future. He stressed the growth of consumer banking in the Far East which, excluding Hong Kong, raised operating profits by 54%.

Despite a 51% leap in bad-debt provisions to $407m, mainly to cover personal bankruptcies in Hong Kong and Argentina, the group pared its costs by 2% and total revenues rose by 6% to $2.28bn.

Chairman Sir Patrick Gillam said the bank would press on with its planned listing in Hong Kong at the end of the year and said 'a modest equity offering could optimise the impact of the listing' although he warned this depended on the state of equity markets at the time.

Bad-debt provisions were hit by an extra $75m set aside for Argentina and $149m for Hong Kong bankruptcies. Davies said that it looked as though the situation had at least stabilised and could potentially ease. He also welcomed the move to create credit rating bureaux across Asia. The bank is reviewing its Latin American business in its push to improve wholesale banking returns and did not rule out an exit from the region.

The level of bad-debt provisioning prevents the bank hitting its target of a 20% return on equity. Although this fell from 14.4% to 12.8% year-on-year, it improved on the second half of 2001's 9.3%. The cost-to-income ratio also improved from 55.6% to 51.9%.

Hong Kong, which represents just over a third of Standard Chartered's business, is still showing sluggish growth at about 1% this year but it said Singapore, Malaysia and Thailand were all doing better than expected with growth between 3% and 4%. In terms of operating results Thailand, Taiwan, India and the United Arab Emirates proved strong growth engines. While reported earnings per share dropped 10% to 36.1 cents, the dividend is raised by 10% to 14.1 cents.

A shortlist for Gillam's successor has now been drawn up and the winner should be announced in the second half, well before his retirement next May.

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