Standard Chartered targets cost cuts after profit miss

Bloomberg

Standard Chartered Plc (StanChart) will hand back $750 million through a share buyback despite missing estimates, as the bank looks to cost cuts and higher interest rates to boost returns.
Adjusted pretax profits for 2021 rose 55% to $3.9 billion, missing a company-compiled estimate of $4.3 billion, dragged down by a $300 million writedown on its investment in China Bohai Bank, according to a statement from the London-based lender on Thursday.
The bank reported a 5% rise in operating expenses for the full year. Standard Chartered warned last year of increasing staff costs on the back of higher performance-related pay, exacerbated by intense competition among banks. Speaking last month, Chief Executive Officer Bill Winters said the lender was having to look for savings across its business to keep a lid on expenses as the lender is forced to pay up for “pricey talent.”
Chief Financial Officer Andy Halford said in a Bloomberg Television interview on Thursday that the overall bonus pool has gone up “significantly,” particularly in the wealth management space. “We are probably a quarter up on where we were last year.”
The Asia-focused lender said it aims to cut $1.3 billion of “structural” costs through 2024 to create more room for investments and will target earnings growth of 8% to 10%, up from 5% to 7% this year, in part as higher rates stoke earnings. The bank painted an optimistic outlook as it pointed to further hikes in rates by major central banks.
“We have committed today to a set of far-reaching actions, to deliver a return on tangible equity of 10 percent by 2024,” Winters said in the statement. Standard Chartered is also planning to invest $300 million in China to drive profits in the world’s second-largest economy.
The lender’s stock has been on a roll since the start of the year, with the shares boosted by hikes in rates by the Bank of England and expectations that the Federal Reserve will lift US rates this year. Low rates have hit the industry’s margins for years, with an internal Standard Chartered calculation concluding that the low-rate environment had cost the company about $1.5 billion in lost profits.
Last year, Standard Chartered announced a $250 million buyback and a $0.09 dividend — unchanged for 2021 — that underwhelmed investors. Expectations had been building the bank would rectify this at its full-year results, with analysts at Jefferies International Ltd. going so far as predicting a $1.7 billion buyback based on the amount of excess capital they said the lender would have on hand.
A drop in credit impairments helped drive the full-year earnings rise. They declined to $263 million last year from $2.3 billion in 2020 when bad debt spiked during the pandemic.
In June, Winters will celebrate his seventh anniversary as CEO. In the past 12 months he has attempted to refocus investor attention on the investments made by the bank in digital projects, such as its Hong Kong virtual bank and its online banks in Africa.
Like rival HSBC Holdings Plc, Standard Chartered is targeting the growth of its Asian wealth business as a source of future profits.