Standard Chartered’s 2018 results miss analysts’ forecasts after taking a massive charge for penalties over past conduct

27-Feb-2019 Intellasia | South China Morning Post | 6:00 AM Print This Post

Standard Chartered, one of three banks licensed to print Hong Kong’s currency notes, missed analysts’ estimates with its full-year financial results after taking a charge for potential fines that are liable under US sanctions law.

The bank’s underlying pre-tax profit rose to $3.86 billion last year, missing Bloomberg’s consensus forecast of $3.98 billion by 3 per cent. Operating income was $14.97 billion for the year, missing estimates of $15.02 billion, while net profit fell 20 per cent to $618 million.

The bank, founded 50 years ago through a merger of two lenders, warned last week that it would set aside $900 million in the fourth quarter to cover potential penalties related to a series of previously disclosed investigations, including scrutiny by the US Justice Department into potential historical violations of American sanctions law and inquiries into its foreign exchange business. Outlook for this year got off to a rocky start, as demand for loans and investments is being deterred by the tit-for-tat trade war between the world’s two largest economies.

Last year “was a year in which commerce and prosperity encountered their fair share of challenges,” chief executive Bill Winters said in a news release. “While the year started strongly with good momentum across all businesses, client sentiment in our markets dipped later in the year, coming under pressure from geopolitical uncertainties, the rapid escalation of trade tensions between the US and China, as well as slower growth in the global economy.”

It also took restructuring charges of $478 million last year, primarily related to the disposal of its “principal finance” business, which included the previously announced spin-off of its private-equity investment operations in a management-led buyout and the sale of most of its private-equity investment portfolio last year.

Following the announcement, the bank’s shares rose as much as 2.9 per cent to an intraday high of HK$64.85 in Hong Kong amid a declining market. The stock’s price had fallen 8.7 per cent in the past 12 months.

On Tuesday, Standard Chartered said that it planned to cut another $700 million in costs over the next three years and achieve a return on tangible equity of at least 10 per cent by 2021.

The company, which employs about 85,000 people worldwide, had a return on tangible equity of 5.1 per cent at the end of 2018, below its prior target of 8 per cent.

“We will achieve this through relentlessly focusing on where we have a distinct competitive advantage, attacking the residual causes of lower returns and ramping-up innovation and productivity,” Winters said.

Still, Winters said the bank is making “good progress” in its turnaround efforts. The London-based bank, which generates much of its revenue in Asia, is the latest big bank to miss analysts’ forecasts as a global sell-off in the financial markets in December weighed on the results at many banking rivals.

The 57-year-old chief executive, who took over from Peter Sands in June 2015, is eager to put the various regulatory inquiries that have lingered over the bank and its performance behind him.

The bank agreed in 2012 to pay a settlement of $1.9 billion to settle a US inquiry into the transfer of billions of dollars on behalf of Iranian clients and others facing American sanctions. A deferred prosecution agreement with the US in that case has been extended several times since 2014.

Standard Chartered has overhauled its compliance functions and established a board-level financial crimes risk committee since the settlement, but it has continued to face additional regulatory scrutiny.

Last month, the bank said it had agreed to pay a $40 million civil penalty to settle an inquiry by the New York State Department of Financial Services into “past control failure and improper conduct” in its currency trading business. The conduct at issue in that inquiry occurred between 2007 and 2013.

Standard Chartered said on Thursday that the UK’s Financial Conduct Authority had issued a notice imposing a GBP 102.2 million (US$133.6 million) penalty in an inquiry “concerning the group’s historical financial crime controls”. The bank has said it was “considering its options” in relation to the notice.

Standard Chartered’s net interest income increased 8 per cent to $8.8 billion last year.

Operating expenses rose 3 per cent to $10.5 billion in 2018, including a $324 million bank imposed by the United Kingdom, the bank said.

The corporate and institutional banking segment reported a 62 per cent increase in underlying pre-tax profit, a measure of profit before certain costs, to $2.1 billion last year.

Underlying profit before tax in the retail banking business rose 11 per cent to $965 million, driven in part by gains in its Greater China and Asean operations.

Standard Chartered’s operations in Greater China and North Asia reported a 14 per cent increase in pre-tax profit, while pre-tax profit more than doubled in its Southeast Asia and South Asia segment.

In Hong Kong, underlying profit before tax rose 14 per cent to $1.6 billion, the bank said.

Standard Bank is one of 29 companies that have applied for a virtual banking licence in Hong Kong, with the Hong Kong Monetary Authority expected to issue is first batch of licence in the first quarter.


Category: Hong Kong

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