Standard Chartered record-breaking results exceed estimates

Standard Chartered (LSE:STAN) has rounded off what has been a strong bank reporting season with a robust performance alongside some ambitious targets for the years ahead. 

The numbers themselves have for the most part beaten estimates, largely driven by strong business activity and higher interest rates in many of the markets in which it operates.

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Record underlying operating income of $19.7 billion for the year represented an increase of 13% from the corresponding period and was above the estimated $19.3 billion, with Net Interest Income (NII) growing by 10% to $10.4 billion. Of equal note, however, was non NII income, which leapt 20% to $9.3 billion, with notable contributions from each of its main units. This combination led to underlying pre-tax profit of $6.8 billion, an increase of 20% from the previous year.

The key metrics revealed a bank which remains in good shape, with the capital cushion, or CET1 ratio rising to 14.2% from 14.1%, comfortably in excess of the group’s target range of between 13% and 14%. Net Interest Margin of 1.94% was up from 1.67% the previous year, with an underlying cost/income ratio of 59.4% against a previous 63.4%.

A Return on Tangible Equity (ROTE) of 11.7% from 10.1% was boosted by improved overall profitability and could prove to be a key milestone towards the bank’s target of around 13% by 2026. Impairments of $557 million were made on a prudent basis and up by 5%, largely relating to the Wealth business, whereas the previous fallout from the China property exposure has already seen much of the provision having been taken.

Perhaps the particular jewel in the crown in these numbers was a record performance at the Wealth Solutions business, which saw income growth of 29%, with net new money of $44 billion, up 61% on the prior year. That equates to growth in assets under management of 16%, underlying the importance and profitability of a bank which has diverse income lines and where its affluent sector boosts overall performance. Indeed, Standard is now aiming for $200 billion of net new money in Wealth Solutions over the next five years, and if achieved this stretching target would clearly represent the next level of growth.

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Despite the headwinds of its exposure to China and the real estate sector in particular, where its presence has been something of a double-edged sword, the group’s general exposure to Asia has offset any immediate concerns.

Indeed, Standard previously highlighted that there were particular pockets of optimism throughout the region, such as the movement of capital away from oil in the Middle East and the inexorable economic growth in India, while the Wealth business is clearly reaping the rewards of targeting the affluent sector in the relevant regions. In addition, the group’s diversity also enabled 15% revenue growth in both the Global Markets and the Global Banking units.

Alongside the strength of the numbers was a statement of management confidence in prospects, where outlook guidance for operating income growth was in a range of between 5% and 7% for the next two years. In addition, a further share buyback of $1.5 billion was announced which was higher than the expected $1 billion, as well as a rise in the dividend which takes the projected yield to 2.6%. While the bank has not traditionally been one for more generous dividend payments, the level of shareholder returns is under constant review. 

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After some years in the doldrums having once been the darling of the UK banking sector, Standard finds itself in something of a revival. Prior to this update, the shares had risen by 90% over the last year, as compared to a rise of 13% for the wider FTSE100. This was driven only in part by a previously rebuffed takeover from First Abu Dhabi Bank, but rather more on prospects particularly throughout emerging markets. 

The warm reception to the numbers reflects optimism for the significant opportunities which the Asian region could provide over the medium to longer term. With such a stellar price run, the shares do not look obviously cheap and Standard will need to deliver on its projections for the next leg of growth. Even so, the strength of this update could well prompt an upgrade to a market consensus which currently stands at a hold, albeit a strong one.