StanChat climbs as overhaul shows signs of sticking

Bloomberg

Standard Chartered Plc’s return to its roots as a trade bank is bearing fruit.
The bank’s shares jumped as much as 5 percent as first-quarter profit topped estimates, fuelled by the biggest increase in transaction banking revenue in more than three years. The lender said it would consider reinstating its dividend next quarter.
Chief Executive Officer Bill Winters is attempting to simplify the bank after an explosion of emerging-market lending led to billions of dollars of writedowns and the first annual loss in decades in 2015. Winters has said a recovery in revenue is needed for the bank to reach its profit goals and restore the dividend.
“The first quarter’s results show the group is on track with its recovery,” Raul Sinha, a bank analyst at JPMorgan Chase & Co., said in a note to clients. “The trends in transaction banking revenues and wealth management are encouraging.”
The shares were up 3.4 percent at 10:58 a.m. in London, the largest gain in the 46-company Stoxx 600 Banks Index.
Transaction banking revenue climbed 10 percent to $785 million amid increased Asian trade volumes and rising global interest rates. The unit — which includes the lender’s trade finance, cash management and custody businesses — accounts for about a fifth of Standard Chartered’s revenue. Analysts at UBS Group AG estimated the unit’s revenue would climb 5 percent, while Sanford C. Bernstein’s Chirantan Barua predicted an 11 percent jump.

Trade Threats
The nascent recovery in the trade business faces threats. Winters said in February the bank has been “war-gaming” disruptions that could be caused by some of President Donald Trump’s policies, including a U.S. trade war with China, a diminished World Trade Organization and border taxes on major business partners.
While Winters said a protectionist U.S. would harm the bank, Standard Chartered is well-placed to benefit if such a stance forces investment out of America and into Asia. The lender, one of the world’s largest providers of trade finance, made about two-thirds of its revenue in Asia last year.
Underlying pretax profit for the first quarter almost doubled to $1.05 billion, the lender said in a statement Wednesday. That beat the $850 million average estimate of five analysts surveyed by Bloomberg News. Revenue climbed to $3.61 billion, missing the analysts’ $3.64 billion average estimate. The lender reported an 8 percent jump in income from its China region.
“It was an encouraging first quarter, but we are not getting carried away,” Chief Financial Officer Andy Halford said on a call with reporters. “We acknowledge we still have a long way to go. Delivering sustainable income growth is an important part of this and remains a key priority.”
There were areas of weakness. The bank posted a 38 percent plunge in foreign-exchange revenue, its biggest trading business. Halford blamed the fall on lower activity in Asia than the U.S., where Wall Street firms all posted gains in fixed-income and
currency trading.
The firm also took another $55 million of restructuring charges, mostly tied to a private equity business it’s closing down. The principal finance division, which houses the private equity unit, lost $650 million last year, and Halford said there were more charges to come this year.
Loan impairments fell to $198 million from $471 million in the first period of 2016. The CFO cautioned that the cost of bad loans was likely to be higher in coming quarters.
The common equity Tier 1 capital ratio, a measure of financial strength, rose to 13.8 percent from 13.6 percent at the end of 2016. Standard Chartered’s board is waiting to assess the impact of accounting and regulatory changes that could lower that ratio before committing to a dividend, Halford said.
The bank’s shares have jumped more than 30 percent over the past 12 months. However, the stock still trades at a steep discount to book value. In August, the bank said it would probably miss a profitability target set less than a year before, blaming an uncertain regulatory and economic environment.