No panic at Standard Chartered even as profits plummet 40%
Standard Chartered’s third quarter profits have fallen 40% year-on-year to $745m, but that was significantly ahead of bank-compiled analyst forecasts of $502m. SCB gave a relatively robust explanation of its performance, saying it had lowered Covid-19 loan-loss expectations and would consider resuming dividends.
Like rival Asia-focused bank HSBC, which reported last week, Stan Chart expects client demand will increase over the course of 2021 as more of its key markets start to come out of recession. This is probably a reference to Hong Kong, Singapore, India and China, among other markets.
It was a modest quarter for traders at Standard Chartered. Operating income from financial markets products grew 4% year-on-year in Q3, despite “significantly lower levels of market volatility than in the first half of this year”. Stan Chart attributed this to “improvements made to the business model in recent years as well as increased hedging and investment activity by clients”. Within financial markets, there was double-digit growth in rates, commodities, credit and capital markets, while foreign exchange income was up slightly. Still, many US and European banks outperformed Stan Chart in these areas.
Income from wealth management products was a comparative bright spot – it increased 16% for the quarter, following “particularly strong sales performance in FX, equities and structured notes”. Stan Chart reported that market sentiment remains fragile, but has “noticeably improved” in many of its larger markets, supplemented by wealth clients increasingly using digital channels.
“Our wealth management and financial markets businesses have good momentum, we are controlling costs to fund innovation, and we believe we are well provided against credit impairment,” said CEO Bill Winters, suggesting more investment – and possibly hiring – in technology.
While Stan Chart remains a major player within Asian transaction banking, income from transaction banking products was down 25% in Q3. Cash management declined 32% “as double-digit volume growth was more than offset by declining margins given the lower interest rate environment”. Trade finance income declined 10% “with lower balances reflecting a significant reduction in global trade volumes resulting from the COVID-19 pandemic”. Stan Chart is not alone in reporting falls in transaction banking. Deutsche Bank yesterday announced an 8% decline in its global net revenues.
In terms of “client segments” at Standard Chartered, private banking was the only one to register an increase. Profits were just $17m, but that was an increase of $20m year-on-year, driven by lower expenses and impairments. Corporate and institutional banking income fell 6%, with a decline in cash management products more than offsetting an 8% increase in financial markets. Retail banking and commercial banking income decreased 2% and 12%, respectively.
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