Profits plunge for UK bank Standard Chartered

Standard Chartered, the UK bank that makes about three-quarters of its earnings from Asia, posted a 24 per cent drop in first-half profit after writing down the value of its Korean business by $1 billion (€754m).

Net income fell to $2.18 billion in the first half from $2.86 billion in the year-earlier period after the writedown and a decline in income from China and Singapore, the London-based lender said in a statement today. Standard Chartered said Korea is the bank’s “most difficult market” and a source of bad debts after South Korea created a fund aimed at easing households’ debts by buying and rescheduling overdue loans. The bank earlier this year dropped its target to increase revenue by at least 10 per cent as its growth slowed in Korea, Singapore and China.

“We’re clearly not targeting double-digit income this year, but still expecting to grow our business at a good pace this year,” finance director Richard Meddings said on a conference call with journalists today. Revenue rose 6.6 per cent to $9.99 billion, helped by Hong Kong, Africa and India, Standard Chartered said. The lender said it has “good momentum” for the second half of the year. “The company is effectively saying it’s comfortable with full-year estimates,” said Gary Greenwood, an analyst at Shore Capital in Liverpool, England who rates the bank a buy. The stock rose as much as 4.3 per cent to 1,589 pence and traded at 1,564.5 pence at 12:15 p.m. in London trading.

Impairments on loan losses rose 27 per cent to $730 million, less than the $756 million estimate by Deutsche Bank’s Jason Napier in a July 10th note to clients. He rates the stock a hold. Profit at the wholesale bank, run by Michael Rees, climbed to $3.23 billion from $3.03 billion. The division includes trade finance, payment processing and some investment-banking activities such as merger advisory and equities.

Operating profit in the consumer bank, led by Steve Bertamini, fell 5.5 per cent to $858 million from $908 million as Korean impairments rose. The firm said in June it was reviewing the valuation of its Korean business amid a surge in souring loans. Standard Chartered posted a $6 million operating loss at its consumer bank in Korea, compared with a $100 million profit in the year-earlier period. When it acquired Korea First Bank in 2005, the industry’s return on equity was 18 percent compared with about 4 per cent today, the lender said. “It will not be a quick fix, but we are committed to doing what we have to do to make it work,” the bank said.

HSBC Holdings, the other U.K. bank that gets most of its profit in Asia, yesterday reported first-half earnings that missed analysts' estimates. Chief executive officer Stuart Gulliver said the pace of expansion in its fastest growing markets is slowing. Taiwan and China contributed to a decline in profit at the lender's Other Asia Pacific unit. In consumer banking, profit from the region fell to $99 million from $125 million and in wholesale banking to $503 million from $614 million. China's economy has slowed for two straight quarters, extending its longest period of expansion below 8 per cent in at least two decades.

Bloomberg