Standard Chartered Plc will hand US$750 million to investors through a share buyback despite missing estimates, as the bank looks to boost earnings with cost cuts and higher interest rates.
Adjusted pretax profits for 2021 rose 55% to US$3.9 billion, missing a company-compiled estimate of $4.3 billion, dragged down by a U$300 million writedown on its investment in China Bohai Bank, according to a statement from the London-based lender Thursday.
The bank reported a 5% rise in operating expenses for the year. Standard Chartered warned last year of increasing staff costs on the back of higher performance-related pay, exacerbated by intense competition among banks.
Speaking last month, CEO Bill Winters said the lender was having to look for savings across its business to keep a lid on expenses as the lender is forced to pay up for “pricey talent.”
CFO Andy Halford said in a Bloomberg Television interview Thursday that the overall bonus pool had gone up “significantly,” particularly in wealth management. “We are probably a quarter up on where we were last year.”
The Asia-focused lender said it aims to cut US$1.3 billion of “structural” costs through 2024 to create more room for investments and will target earnings growth of 8% to 10%, up from 5% to 7% this year, in part as higher rates stoke earnings. The bank painted an optimistic outlook as it pointed to further hikes in rates by major central banks.
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“We have committed today to a set of far-reaching actions, to deliver a return on tangible equity of 10% by 2024,” Winters said in the statement.
Standard Chartered is also planning to invest US$300 million in China to drive profits in the world’s second-largest economy. Much of this money will be spent on expanding wealth management operations in the country, Halford said in a phone interview.
The shares fell 3.7% to 528.2 pence as of 12:01 p.m. in London.
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Rate Expectations
The lender’s stock has been on a roll since the start of the year, with the shares boosted by hikes in rates by the Bank of England and expectations that the Federal Reserve will lift US rates this year. Low rates have hit the industry’s margins for years, with an internal Standard Chartered calculation concluding that the low-rate environment had cost the company about US$1.5 billion in lost profits.
The share buyback plan was smaller than some had expected. Last year, Standard Chartered announced a US$250 million buyback and a US$0.09 dividend -- unchanged for 2021 -- that underwhelmed investors. Expectations had been building the bank would rectify this at these full-year results, with analysts at Jefferies International Ltd. going so far as predicting a US$1.7 billion buyback based on the amount of excess capital they said the lender would have on hand.
A drop in credit impairments helped drive the full-year earnings rise. They declined to $263 million last year from US$2.3 billion in 2020 when bad debt spiked during the pandemic.
In June, Winters will celebrate his seventh anniversary as CEO. In the past 12 months he has attempted to refocus investor attention on the investments made by the bank in digital projects, such as its Hong Kong virtual bank and its online banks in Africa. Like rival HSBC Holdings Plc, Standard Chartered is targeting the growth of its Asian wealth business as a source of future profits.
“This will be a business that is clean, it is sharp, it has a tidy balance sheet, it’s well disciplined, it’s well focused, and people, I think, will look back on the last few years and say it was quite a tough task to go and sort out a business that had a few issues, then to go through Covid,” said Halford.
Photo: Bloomberg
