Shares in Standard Chartered rose sharply on Tuesday despite an almost 60 per cent fall in first-quarter profits, as investors were cheered by early signs of progress in the new turnround strategy at the emerging markets bank.
Having slumped to its first annual loss for more than a quarter of a century last year, StanChart warned that trading conditions remained “challenging”, citing depressed commodity prices, volatile Chinese markets and weak emerging market sentiment.
“These are difficult and volatile times but we are well prepared for them from a capital and a liquidity perspective,” said Bill Winters, who took over as chief executive last year. “We are in a good, strong position and are very focused on improving profitability which we can see from the first quarter continues to be very poor.”
Shares in the bank rose 13 per cent to 589.8p — a new high for 2016 — after it reported a return to profit in the first quarter, which is typically the strongest period of the year for banks.
Its shares have rallied more than 50 per cent from recent lows but they are still two-thirds below their highs of three years ago.
The first of the large UK banks to issue quarterly results, StanChart reported statutory pre-tax profits of $589m in the three months to March, down from $1.44bn in the year-ago period.
Chirantan Barua, analyst at Bernstein, said: “The bank’s earnings power has come under a lot of debate of late — we see a significant part of the headwinds as cyclical rather than structural at this point of the cycle … which will turn as the bank starts repricing export-import customers along with the other two major trade banks.”
The London-listed bank, which specialises in Asia, the Middle East and Africa, came through the financial crisis relatively unscathed. But in the past two years it has been hit by slowing growth in its key Asian markets and by the downturn in the commodities sector.
The bank’s results comfortably beat analysts’ expectations, thanks to much lower than expected provisions for bad loans, which were flat year-on-year at $471m. That is far below the level of the past few quarters and may reflect a recent rebound in commodity prices and more stability in Asian markets.
Revenues were down a quarter year on year at $3.35bn.
Andy Halford, finance director, pointed out that they had stabilised quarter on quarter. “This has been the major focus of the management team and it remains so,” he said.
The bank faced several questions from analysts on whether it could keep provisions low and start to generate the revenue growth needed to hit its 8 per cent return on equity target by 2018, and 10 per cent by 2020.
Joseph Dickerson, analyst at Jefferies, sounded sceptical, pointing out that its revenues had been below analysts’ consensus estimates in the quarter. He warned that he still expected “pressure on impairments” later this year.
The results come five months after StanChart announced a £3.3bn rights issue that helped it to scrape through the Bank of England’s latest stress tests.
The bank’s core equity tier one ratio, a key measure of capital strength, rose from 12.6 per cent to 13.1 per cent in the last quarter, slightly above its target range.
As well as boosting the bank’s capital, Mr Winters has also shaken up its top management and overhauled its strategy. He aims to shed 15,000 jobs, cut 30 per cent of its cost base and to restructure almost a third of its risk-weighted assets.
“We don’t feel we are out of the woods yet,” said Mr Winters. “We don’t feel we have fully rounded the corner on this point, given that [bad loans] are still rising. But things are looking a bit better than in January.”
Total operating costs were down 10 per cent in the first three months of the year. The bank booked $125m of restructuring charges in the first quarter out of a total $1.2bn expected over the year.
