StanChart profits miss estimates but unveils $1bn buyback

Standard Chartered on Thursday announced a new $1bn share buyback as annual profits rose by almost a third on higher global interest rates, but still missed estimates after a sharp rise in bad debt provisions.

The Asia, Africa and Middle East-focused bank reported pre-tax profit of $4.3bn for 2022, up 28% from a year earlier and below the $4.73bn average of company-compiled analyst forecasts.

It also took a higher-than-expected $838m bad debt impairment, up $575m, as surging inflation and a global economic slowdown markets hit borrowers. The provision included $582m for expected bad loans in China’s troubled real estate market and lower quality government debt in Pakistan, Ghana and Sri Lanka.

Underlying operating income rose 16% to $16.3bn, with double-digit growth as fees, commission and trading revenue all surged. Net interest margins - the difference between what a bank charges on loans and pays on deposits - were 1.41%, up from 1.21%.

StanChart upgraded performance forecasts, saying it now expected to achieve a return on tangible equity of 10% this year and 11% in 2024. It had previously targeted 10% for 2024.

The earnings come after takeover speculation last week with First Abu Dhabi Bank PJSC rejecting reports it was considering a bid a bid for StanChart.

“Standard Chartered’s profits disappointed in the final quarter. Impairments came in worse than expected, with credit charges stemming from the group’s large exposure to the shifting Chinese real estate sector," said Hargreaves Lansdown analyst Sophie Lund-Yates.

"More disappointing is the misstep in the group’s wealth management business, where growth has been a priority. Customers are wary in the current economic environment, which acts as a headwind for this area."

Lund-Yates added that further takeover approaches could not be ruled out with the bank's the valuation "languishing at well below the value of the group’s assets".

"There’s a confident signal from management that the shares are undervalued with a $1bn buyback announced, and that’s a large reason the share price has been propped up today, despite the weaker results. The UK’s beaten up financial sector is jumping at the chance to reduce their share pools while sentiment is subdued, and there could be more to come.”

Reporting by Frank Prenesti for Sharecast.com