Standard Chartered first quarter misses targets as de-risking hurts business

LONDON (ShareCast) - Revenues from Standard Chartered (Other OTC: SCBFF - news) fell more than expected in the first three months of the year as the Asia-focused bank faced challenging trading conditions and said its deleveraging measures hit performance. Total (Swiss: FP.SW - news) revenues slipped 4% to $4.4bn, a 6% miss versus consensus forecasts of $4.7bn, but customer loans rose by 2% quarter-on-quarter after a 4% decline in the second half of 2014.

"Trading conditions remain challenging and the actions we are taking to de-risk, cut costs and build capital are having an impact on near term performance," said chief executive Peter Sands.

Operating income was down 4% to $4.40bn compared to the same period last year.

With expenses rising 1%, operating profits fell 9% to $1.89bn and, with impairments $0.5bn were higher, profits before tax slumped 22% to $1.47bn, 7% short of consensus.

Analysts noted that disposals will weigh on customer loan numbers in the coming quarters but that management's array of disposals and other cost-cutting initiatives can keep group costs broadly flat for the next three years despite a higher UK bank levy and Asian inflation.

Management expectation the 2015 UK bank levy to be $540m, up from $366m last year.

Sands added that the group was on schedule to deliver both a Common Equity Tier 1 ratio of 11-12% and sustainable cost saves in excess of $400m in the full year.u He said underlying business volumes generally remained strong and that management were "confident in the strength of our franchise, the opportunities in our markets and in our ability to build returns to an attractive level in the medium term".

Broker Investec said: "On one level, the market may be mildly relieved by today's numbers, but we think that STAN's Q1 2015 IMS offers a preview of the unpalatable impact of planned deleveraging now underway." Analyst Ian Gordon said he was now cautious on all UK banks and added that he believed management change at Standard Chartered increases shareholder risks and hence he continued to forecast a cut in the dividend from 86 cents in 2014 to 50 cents in 2015 - "and although we do believe that STAN should be able to run with less capital than any other UK bank, we have reduced confidence as to whether such a situation will prevail".

Re-domicile redux In recent days the bank's share price, like that of fellow dual-listed peer HSBC, has been supported by the resurfacing of talk about the potential for cost cutting from moving corporate headquarters out of the UK, presumably to Hong Kong.

The potential for selling or floating UK retail assets has also mooted, for HSBC in particular, but analysts mostly dismissed such a possibility as unlikely to happen in the short-term.

Deutche Bank, which has a 'sell' on the stock said: "In the press call management shared expectations of a FY15 UK bank levy of $540m from $366m last year. We think a [headquarters] move for SC would be more logical and easier to execute than for HSBC." DB note that $540m is 14p a year in EPS. For now, however, we expect consensus EPS to fall on lower revenue forecasts, higher costs and a reluctance to assume lower-than-expected loan losses survive the arrival of Bill Winters as CEO." UBS said all talk of corporate house moving was just pre-election "noise".

"While there has been considerable recent media attention around the issue of redomicile following confirmation from both HSBC and Standard Chartered that both are considering the possibility of such a move, our view is that while this may happen in the long-term, neither is likely to undertake it in the short term," the bank said.

"We attribute the rationale for statements in this regard as being more a reminder to UK politicians ahead of the UK election than a message of serious intent."