Standard Chartered’s share price leaps as troubled bank begins to show signs of turnaround
Standard Chartered's share price leaped more than 10 per cent today, as the beleaguered bank revealed green shoots in its turnaround plan.
The figures
This time three months ago, StanChart was revealing an $876m (£601bn) underlying pre-tax loss, today it has reported a profit of $539m.
Compared to the fourth quarter of 2015, operating pre-tax profit was up 264 per cent, while operating income nudged up three per cent.
StanChart said trading conditions remained similar to the last quarter of 2015, with "depressed commodity prices, volatility in Chinese markets, weak emerging market sentiment and concerns around interest rate and other policy actions" all affecting overall performance.
Year-on-year, the figures still make for grim reading: Operating pre-tax profit plummeted 43 per cent to $1.1bn, down from $1.9bn last year. The group recorded an underlying profit of $539m, down 64 per cent from $1.5bn in the same period in 2015.
Operating income also fell, down 24 per cent to $3.3bn for the three months to 31 March, with operating expenses climbing 12 per cent to just over $2bn. Total operating expenses were up 10 per cent to $2.2bn.
Deutsche Bank had forecast revenues of $3.7bn and costs of $2.5bn, but only a profit of $29m.
Standard Chartered's share price was up 6.4 per cent in mid-morning trading. By 2pm, it had jumped 10.2 per cent.
Why it's interesting
StanChart is the first of the UK banks to release its first quarter trading updates, and there is plenty of expectation resting on chief executive Bill Winters to turn the struggling lender around.
This quarter's trading was in line with expectations, despite the ongoing challenges in the trading environment, which is a sign that Winters and the rest of the management team are making some headway.
However, StanChart warned that in light of those market conditions, and the early implementation of its turnaround plan, group performance would be "subdued" for the full year.
"The fundamental value of the group remains intact, and we are executing our strategy with discipline to drive the right type of business that will deliver sustainably higher returns over time," StanChart added.
What Standard Chartered said
Winters added: "Although trading conditions in the first quarter remained challenging, we continue to make good progress on our strategic objectives.
"The management team is in place, we are taking action to improve recent income trends, managing costs tightly, progressing on key investments, making early progress on the exit of the liquidation portfolio, and maintaining strong levels of capital and liquidity."
What analysts said
Steve Clayton, head of equity research at Hargreaves Lansdown, said: "Things aren’t great at Standard Chartered so far in 2016, but they’re a lot better than they were at the end of last year. Investors duly let out a sigh of relief and pushed the share price up in early morning trading.
"When emerging markets submerge, a business like Standard Chartered will always feel the pain, especially because they raised their risk appetite during the bull years. It is now down to CEO Bill Winters and his team to sort out the mess.
"Plans to shed riskier assets, cut operating costs and rebuild capital make perfect sense in the circumstances, though they are a far cry from the image of Standard Chartered as the “growth bank” that investors had just a few years ago."
Clayton also noted that StanChart's emerging market exposure could turn out to be "a huge positive" – although noted that "getting there will be easier said than done."
Russ Mould, investment director at AJ Bell, added: “A seven per cent jump in Standard Chartered’s shares may seem an odd way for the market to welcome a 59 per cent drop in first-quarter stated pre-tax profit, but analysts had already slashed profit forecasts, so the bank has simply skipped over a low bar.
"These figures merely lived down to a low set of expectations. In fact, analysts have been busily cutting their numbers for all five of the FTSE 100’s big banks."
In short
StanChart is starting to make progress – but there is a long road ahead.