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Standard Chartered coronavirus impairments pare profits despite stronger income

Income increased 13% in the first quarter as higher volumes in financial markets offset lower interest income

Standard Chartered PLC -
Around half of StanChart's assets and profits are from Asia

Standard Chartered PLC (LON:STAN) reported a 12% decline in profits as it wrote down the value of some of its loans in anticipation of the fallout from the coronavirus pandemic. 

The Asia-focused bank, which was one of the first in the sector to warn of the effects of the virus, saw income increase 13% to US$4.3bn in the first quarter of 2020 as higher volumes in financial markets offset lower interest income.

However, despite a 2% reduction in costs, profit before tax fell 12% to US$1.2bn due to a US$956mln credit impairment, of which more than US$200mln related to two unrelated corporate clients.

Around half of StanChart's profits in the period were from China and other parts of Asia.

Net interest margin was down to 1.52% from 1.54% in the fourth quarter of last year.

Capital levels remained strong, with a CET-1 ratio of 13.4%, down 45 basis points since the fourth quarter but still in middle of the lender’s 13-14% medium-term target range.

“The unique characteristics of the Standard Chartered franchise are coming through strongly as the impact of COVID-19 evolves,” said chief executive Bill Winters.

After the final dividend for 2019, interim payout for this year and share buyback were all withdrawn earlier this month at the request of the Bank of England, the board said it will consider a final dividend in 2020 after taking into account the financial performance of the group for the full year and the medium-term outlook at that time.

StanChart shares were up 3% on Wednesday morning to 403.15p, still down 44% in the year to date.

Profit was around 11% above the consensus forecast, said UBS, as the higher than expected impairments were offset by better pre-provision profit, mainly from the Wealth arm, and significantly aided by a net US$154m in writebacks of previously impaired assets.

“StanChart's relatively high cost/income ratio – 68% in 2019 – means income gearing is high,” the analysts said, seeing the outlook for loan impairments naturally also as crucial, with the 110bps charge taken in the quarter inflated by a substantial management overlay and two material single-name client charges.

“As at HSBC we think investors will be wondering if, with Asia recovering slowly from Covid-19, underlying loan loss formation can remain this modest on an underlying basis.”

   --Adds share price and broker comment--

Quick facts: Standard Chartered PLC

Price: 376.8 GBX

Market: LSE
Market Cap: £11.89 billion

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