Standard Chartered operating profit sinks 16.4pc as markets, regulations weigh
Third quarter operating profit sinks 16.4 per cent amid sluggish financial markets business and rapidly shifting regulatory environment
Shares of lender Standard Chartered, which derives about three-quarters of its earnings in Asia, were hammered yesterday on news that operating profit sank 16.4 per cent in the third quarter of the year and prospects for a quick turnaround seem unlikely over the short-term.
The lender's shares in both Hong Kong and London also reeled from news that underlying profit for the second half would fall below that of last year.
In the first nine months of the year, pre-tax operating profit sank 19 per cent year on year as the bank continued to face a sluggish financial markets business and a rapidly shifting regulatory environment in the second half of the year.
Impairment losses on loans and advances climbed to US$536 million in the third quarter, an 86 per cent year-on-year increase. The rise in impairments was concentrated among a small number of institutional and corporate clients with exposure to commodities, finance director Andy Halford said.
Standard Chartered's regulatory concerns in markets across Asia and the Middle East are only set to increase.
Embattled chief executive Peter Sands added mainland China's across-the-board corruption purges to the bank's list of worries.
"China is going through some pretty radical changes," Sands said. "As the anti-corruption campaign continues, we have to be very watchful on how we manage our exposures."
Communist party boss Xi Jinping has pushed on for nearly two years with a drive against corrupt officials that has seen some of the highest-profile purges in decades.
Sands said the bank continued to exit non-core businesses and de-risk its investment portfolios, including US$400 million in "productivity improvements".
Operating profit before tax declined to US$1.53 billion between July and September, down from US$1.83 billion during the same period last year, bank officials said yesterday in what was its first numerical disclosure of quarterly earnings.
The bank's wealth management business helped turn positive growth of 1 per cent in operating income in the third quarter to US$4.51 billion. That was not enough, however, to offset poor performance in the first half of the year. Operating income in the first nine months fell about 3 per cent to US$13.78 billion from US$14.22 billion in the first three quarters of 2013. The encouraging growth in operating income in the third quarter was "more than offset" by the 4 per cent increase in costs, Barclays said in a note.
Last week, Standard Chartered told thousands of small and medium-sized enterprise businesses in the United Arab Emirates that it would shut their accounts within 30 days. The move came after a New York regulator fined the bank US$300 million in August for failing to flag high-risk transactions in the UAE and Hong Kong.
Sands said that the Hong Kong democracy protests were "not noticeable" in terms of an impact on earnings.
In the first half, Standard Chartered's profit was down 20 per cent to US$3.3 billion. Rival HSBC Holdings reported a 12 per cent drop in profit before tax to US$12.3 billion in the period.
