StanChart to benefit less than others from Fed rate hikes, RBC says

StanChart stands to benefit from rising interest rates in the US but by less than implied by its 2018 tangible book valuation of 0.8 times, analysts at RBC said.

That is because of its structure and exposures, the broker explained.

Analysing US bank margins and cost of risk after two interest rate increases from the Federal Reserve revealed that the former improved with "fairly low" pass-through, the broker explained.

Indeed, those which performed best had low corporate exposure and high non-interest bearing deposits, a "mould which StanChart does not fit".

In parallel, margins in Asia had declined and the cost of risk was increasing, with higher rates in the States negatively impacting the region's lenders thus far, RBC said.

"We expect STAN to benefit from higher rates but show that STAN's geographic mix and structural make-up is sub-optimal in the current world rate environment.

"The current 0.8x 2018E TBV valuation implies too much benefit from the world rate environment in our view."

RBC reiterated its 'Underperform' recommendation on the shares but lifted its target price from 570.0p to 635.0p.