Standard Chartered beat analyst expectations in the second quarter and offered a bullish outlook on the size of further credit impairments this year after it set aside nearly US$1.6 billion for bad loans in the first half as the coronavirus pandemic weighed on economies stretching from Hong Kong to the United Kingdom.
The London-based lender, which generates much of its revenue in Asia, however, cautioned income is likely to be lower on a year-on-year basis in the second half of 2020, citing potential headwinds from low interest rates, depressed oil prices and additional waves of infections.
Standard Chartered also confirmed on Thursday that it would make a "small number" of job cuts as part of an ongoing revamp under chief executive Bill Winters, but said it would pay affected employees through the end of the year.
"The benefits of the early stage recovery in some of our markets and our geographic and product diversity are unlikely to be enough to offset the impact of low interest rates and the probability of less buoyant conditions for our financial markets business," Andy Halford, the Standard Chartered chief financial officer, said in a stock exchange filing.
It is the latest global bank to massively increase its provisions for soured loans this year and foreshadows how big a hit Hong Kong rival HSBC could take when it reports next Monday. HSBC warned in April that its bad loan provisions could reach as much as US$11 billion this year, but the global outlook has worsened since then.
Standard Chartered set aside an additional US$611 million for credit impairments in the second quarter, compared with US$176 million a year ago. That was on top of US$956 million previously reported in the first quarter, but better than analysts expected.
Banks ranging from JPMorgan Chase to Spanish lender Banco Santander have set aside tens of billions of dollars in provisions since the beginning of the year because of the worsening economic outlook.
Like its European rivals, Standard Chartered adopted new accounting standards in 2018 that require the bank to recognise potential credit losses over the life of a loan and more aggressively write down loans if they have experienced a significant increase in credit risk.
Standard Chartered, one of three banks authorised to issue currency in the city alongside HSBC and Bank of China (Hong Kong), reported an underlying pre-tax profit of US$733 million in the second quarter, a 40 per cent decline from US$1.23 billion a year earlier. That was ahead of a consensus estimate of US$310 million by 12 analysts compiled by the bank.
Like many of its Wall Street rivals, Standard Chartered benefited from a 16 per cent jump in its financial markets business as increased volatility fuelled trading in the second quarter, but other product areas were weaker with wealth management and transaction banking reporting double-digit declines.
On a net basis, profit fell 30 per cent to US$339 million in the quarter, compared with US$482 million in the second quarter of 2019.
Shares of the emerging markets focused lender declined 1.9 per cent to close at HK$41.80 in Hong Kong on Thursday.
On Thursday, the lender did not disclose how many jobs would be eliminated or what parts of its business were facing redundancies, but said there were not as result of the pandemic.
"No one will miss a pay cheque in 2020," Winters said on a conference call with journalists. "I'm not aware other firms having made a similar commitment."
The coronavirus, which causes the disease Covid-19, has weighed on economic activity across the globe for much of the year, as second and third waves of the virus in recent weeks forced governments from Hong Kong to the United States to slow reopening efforts or encourage businesses to keep most of their employees at home.
Hong Kong - Standard Chartered's biggest market - put more drastic social distancing measures in place recently to try to tackle a dramatic spike in cases, but said it would ease some of those restrictions later this week despite recording new triple-digit infections for a ninth day in a row on Thursday.
The city's economy has been hit hard, first by months of anti-government street protests and then by the fallout from the pandemic. The city also has found itself at the centre of deteriorating US-China relations after the passage of a controversial national security law in June.
Bill Winters, CEO of Standard Chartered. Photo: Bloomberg alt=Bill Winters, CEO of Standard Chartered. Photo: Bloomberg
Underlying pre-tax profit in Standard Chartered's Hong Kong business fell 19 per cent to US$705 million in the first half of the year, compared with US$872 million in the prior-year period.
Standard Chartered did not break out a quarterly result for its Hong Kong business. Underlying pre-tax profit in its Greater China and North Asia segment, which includes Hong Kong, fell 28 per cent to US$484 million in the second quarter.
The bank previously warned in February that it expected income growth in 2020 below its medium-term target range of 5 per cent to 7 per cent because of "lower interest rates, slower global economic growth, a softer Hong Kong economy and the impact of the recent novel coronavirus outbreak".
Overall, operating income, which is similar to revenue in the US, declined 4 per cent to US$3.72 billion in the second quarter. Net interest income fell by 14 per cent to US$1.67 billion.
The investment banking unit reported a 23 per cent decline in underlying pre-tax profit to US$476 million in the second quarter, while underlying pre-tax profit in the retail bank fell 72 per cent to US$93 million.
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