BofA Merill downgrades StanChart after results

Standard Chartered was under pressure for the second day running as Bank of America Merrill Lynch downgraded stock to ‘neutral’ from ‘buy’ and slashed the price target to 475p from 650p following its 2015 results.

Standard Chartered ended last year with a pre-tax loss of $1.5bn, implying a fourth quarter loss of $3.2bn.

Bank of America ML said the loss exceeded its estimate of $1.7bn for the quarter, which was dominated by the costs of a rapid implementation of the restructuring plan announced in November.

However, ML said the forward-looking conclusion was the shortfall in the top line.

Merrill said StanChart’s revenue for 2015 was $5bn short of what it and consensus expected this time in 2014.

“Unwinding the excesses of the post-2008 expansion in concentration, business breadth and risk appetite have proven materially harder than we anticipated,” Merrill said, as it cut its 2016-18 revenue forecasts a further 6%.

In the short term, Merrill expects the company’s balance sheet to continue to shrink.

It argued that lower commodity prices will also have a modest negative effect, although with commodity finance now more modestly scaled within the group, less than in 2015.

“And with capital markets relatively challenged in 1Q 16, client activity in both wholesale and retail could be impacted,” the bank said, adding that management did not make specific comments on first quarter trading in the results presentation.

Merrill said it now sees a 6% return on tangible equity in 2018, which is 200 basis points below StanChart’s aspirations.

At 0938 GMT, StanChart shares were down 5.8% to 383.30p.