Standard Chartered’s big bet on China backfired in the last quarter, earnings on Thursday showed. The lender’s old hedge in the Middle East should help support the stock as Asian setbacks abate.
Annual pre-tax profit rose 28 per cent, but remained below forecasts. Impairments hit a higher-than-expected $838mn for the year.
That reflected a rocky few months in China for the UK-listed bank. It took a $308mn hit on its investment in China Bohai Bank. A broader slowdown and the property market crisis triggered a $582mn impairment. The wealth management business reported a 17 per cent income drop partly due to lockdowns that precluded in-person client meetings.
Critics quip that boss Bill Winters is executing the longest turnround in history. But there are still grounds for optimism. The bank’s common equity tier one ratio of 14 per cent is in line with peers. It has raised its target return on tangible equity to over 11 per cent. The financial markets trading business has been performing well.
StanChart has differentiated itself from other Asia-focused peers by betting big on emerging markets. Its largest market segment after Asia is Africa and the Middle East. The United Arab Emirates contributes a quarter of the total. Here, demand for wealth management is growing. GDP is expected to rise more than 7 per cent this year.
First Abu Dhabi Bank, the UAE’s biggest lender, has been tipped as a bidder for StanChart. Steep political and regulatory hurdles make this unlikely, even if the 40 per cent premium implicit in a $35bn sticker price was feasible.
This should not stop StanChart benefiting from exposure to the Middle East — so long as it tiptoes carefully around compliance pitfalls. The UAE is emerging as an intermediary space between east and west, even as Hong Kong’s role diminishes.
StanChart shares are up a third in the past year, but still trade at just over half tangible book, more than a 40 per cent discount to peer HSBC. Better performance, a $1bn buyback and Middle Eastern exposure should all bolster share price gains.
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