Bloomberg News

Standard Chartered Slumps on Earnings Outlook: Hong Kong Mover

December 04, 2013

Standard Chartered Bank

An illuminated logo sits on display outside a new bank branch of Standard Chartered Plc in the business district of Central in Hong Kong. Photographer: Jerome Favre/Bloomberg

Standard Chartered Plc (STAN) slumped to the lowest in three months in Hong Kong trading after the lender said full-year operating profit at its consumer-banking unit will drop at least 10 percent, hurt by its Korean business.

Operating profit at the division “is now expected to be down by a double-digit rate,” while revenue is seen increasing “at a low single-digit rate” in 2013, the London-based bank said in a statement yesterday. Income in South Korea may fall about 15 percent this year and the lender expects to lose almost $200 million from consumer banking in that nation, Chief Financial Officer Richard Meddings told reporters on a call.

“The guidance in the statement was unexpected,” Steven Chan, a Hong Kong-based analyst at Maybank Kim Eng Securities Pte, said by phone today. “Compared with the guidance for the first three quarters of 2013, the guidance for the full year is actually weaker. That’s why the share prices reacted so negatively.”

Shares (2888) of the bank, which makes about three-quarters of its earnings in Asia, sank 4.4 percent to HK$174.50 as of 11:07 a.m. in Hong Kong, the lowest intraday price since Sept. 5. The London-traded stock slumped 6.5 percent yesterday to the lowest close since Aug. 13, 2012.

Full-year revenue will probably be “broadly flat” in 2013 from a year earlier, according to the statement. The bank, which doesn’t provide a quarterly earnings breakdown, earlier this year scrapped its target of at least 10 percent revenue growth for the full year and wrote down the value of its Korean unit by $1 billion in the first six months.

Important Economy

Standard Chartered in August posted a 24 percent drop in first-half profit to $2.18 billion. It said at the time that Korea’s personal debt rehabilitation program had spurred a jump in loan impairments.

Meddings reiterated yesterday that the bank remains committed to the Korean business, calling it an “important economy.” Excluding Korea, revenue and profit for consumer banking would be “up by single digits,” he said.

“They have a work in progress with restructuring in Korea,” said Paul Hart, a trader at Hong Kong-based Parry International Trading, whose clients invest in Standard Chartered. “Without Korea, they have single-figure percentage increases in profit, so if they can get it right there, they will be looking strong for the future.”

Wholesale-banking income is seen remaining “broadly flat” this year, as client income increased by a “mid single-digit percentage, reflecting strong volume growth offset by significantly lower margins,” the bank said.

‘Near-Term Challenges’

Costs will rise by a “low single-digit percentage” following a “significant increase” in regulatory and compliance expenses and a one-time tax related to costs in Korea of about $60 million, according to the statement. Standard Chartered was fined $667 million by U.S. regulators last year for breaches of U.S sanctions on Iran.

“We are responding to near-term challenges to ensure we strike the right balance between growth and returns, and have successfully managed costs tightly in light of the pressures on income,” Chief Executive Officer Peter Sands said in the statement. We remain “confident in the potential of our markets,” he said.

Sands said on Nov. 11 that the lender will review its businesses to cut back or withdraw from less-profitable markets. The bank left consumer banking in Japan last year and is selling a similar business in Lebanon, according to the CEO.

Other U.K. banks are also selling businesses and reducing costs. Stuart Gulliver, CEO of Asia-focused HSBC Holdings Plc (HSBA), plans to cut an additional $3 billion of expenses after beating an earlier cost target. He has closed or sold 60 businesses and eliminated 46,000 jobs since the start of 2011.

To contact the reporters on this story: Howard Mustoe in London at hmustoe@bloomberg.net; Sanat Vallikappen in Singapore at vallikappen@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net


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