Standard Chartered swings to annual profit as impairments fall

Pedestrian pass the private banking unit of Standard Chartered Plc in London, UK
Pedestrian pass the private banking unit of Standard Chartered Plc in London, UKPHOTO: BLOOMBERG

LONDON (BLOOMBERG) - Standard Chartered swung to an annual profit as loan impairments dropped by almost half and the bank cut costs.

Pretax profit for 2016 was US$409 million (S$577.4 million), compared with a loss of US$1.52 billion a year earlier, the company said in a statement Friday. Operating profit excluding one-time items was US$1.09 billion, missing the US$1.42 billion average estimate of 13 analysts surveyed by Bloomberg.

Chief executive officer Bill Winters, more than a year and a half into the job, is looking to show he's stemmed the bank's losses and can restore a dividend, after a sharp drop in revenue and surging loan impairments in 2015 drove the Asia-focused lender to its first annual loss since 1989. In August, the bank said it would probably miss a profitability target set only last year, blaming an uncertain regulatory and economic environment.

"We recognize the importance of re-energizing growth in income together with strong cost and risk management," Chairman Jose Vinals said in the statement. "We still have a substantial way to go. The journey will be long and difficult to navigate at times, and there are no short-cuts."

Standard Chartered dropped 1.2 per cent to 741.8 pence at 8:39 a.m. in London. The bank's shares have jumped 85 per cent over the past 12 months, the best performance among major European lenders. However, the stock still trades at a steep discount to book value. Revenue declined 11 per cent to US$13.8 billion, surpassing the average US$13.7 billion estimate in the Bloomberg survey. Loan impairments fell to US$2.38 billion from US$4.01 billion in 2015.

Standard Chartered said its common equity Tier 1 capital ratio, a measure of financial strength, rose to 13.6 per cent from 13 per cent at the end of September. That was higher than the 13.5 per cent average estimate from five analysts.

In his first year in charge, Mr Winters tapped investors for US$5.1 billion of fresh cash, identified 15,000 job cuts and said he'd restructure or sell US$100 billion of risky assets. The new strategy was designed to repair the damage caused by his predecessor Peter Sands' rapid expansion across emerging markets, which unraveled when those economies slowed and commodity markets crashed, resulting in billions of dollars of soured loans.

Mr Winters has also vowed to clean up the culture of the firm, where senior staff flouted ethics rules and considered themselves "above the law."

"We have sharpened our focus on all aspects of conduct," Mr Winters said in the statement. "The pace and scale of those changes - many of which were done in parallel and required intense periods of adjustment for employees - undoubtedly impacted some elements of the Group's financial performance in the period. But they were the right things to do."