StanChart still faces long haul on road to recovery

* Q1 pretax profit at $1.26 bln versus $1.21 bln estimates

* Operating income rises 7 pct to $3.9 bln

* Shares (Berlin: DI6.BE - news) fall on revenue disappointment (Updates share price, adds more analyst reaction)

By Sumeet Chatterjee and Lawrence White

HONG KONG/LONDON, May 2 (Reuters) - Standard Chartered Plc (BSE: 580001.BO - news) beat expectations with a 20 percent rise in first quarter pre-tax profit on Wednesday, but disappointing income showed the long road ahead for its returns to meet targets after years of restructuring.

Pretax profit for StanChart (HKSE: 2888-OL.HK - news) , which focuses on Asia, Africa and the Middle East, rose to $1.26 billion in the quarter to the end of March, from $1.05 billion in the same period a year ago, helped by improvements in asset quality.

However revenues -- closely watched by investors who want to see growth driven by income rather than lower impairments -- fell short of market expectations at $3.9 billion, despite being the bank's best since the second quarter of 2015.

This underscores the challenge for StanChart in meeting its already modest targets and helped send the bank's London-listed shares down 1.6 percent by 0910 GMT, reversing earlier gains.

"Overall the key disappointment will be that the strong income start flagged at the full year hasn't persisted," said Richard Smith, analyst at KBW in London.

Analysts at Barclays (LSE: BARC.L - news) and UBS (LSE: 0QNR.L - news) also noted that it would be a stretch for the bank to meet their forecasts for income for the rest of the year, and that it hadn't reaffirmed a target to keep costs below 2015 levels.

Wednesday's profit jump and the return to dividends StanChart announced in February are two early fruits of the sweeping restructuring implemented by Chief Executive Bill Winters when he joined the bank in 2015.

However this has also had consequences, pushing the bank's return on equity, a key profitability metric, into negative territory. StanChart said in February it will restore that to 8 percent in the medium term, but has not announced the timetable for achieving the goal.

NO SHORTCUTS

Hitting the target will involve improving income across all of the bank's main business lines, with the first quarter showing mixed results.

While income for its private banking business climbed 23 percent from the same first-quarter period a year ago, albeit from a low base, income in the key financial markets trading business rose only 2 percent.

That compares with record profits for the quarter posted by U.S. investment banks, which reaped bumper trading profits in the first two months of the year as investors reacted to volatility across stock, bond, currency and commodity markets.

StanChart posted an annualised return on equity of 7.6 percent in the March quarter, compared to 6.3 percent in the first quarter of 2017.

"There are no shortcuts but we are gathering momentum and gaining in confidence," Finance Director Andy Halford told reporters on a conference call on Wednesday.

StanChart did show continued signs of improving its balance of bad loans, with net impairment on financial assets in the quarter 29 percent lower than in the previous period.

Losses from bad debts had plagued StanChart in the recent past, but the bank has since tightened limits on who can make decisions about such big loans and decreased internal limits for exposure to a single client. (Reporting by Sumeet Chatterjee, Emma Rumney and Lawrence White Editing by Muralikumar Anantharaman and Keith Weir)