Standard Chartered on course to follow HSBC in profit-drop surprise
Will Standard Chartered earnings pack a surprise like HSBC's?
The bank is expected to report today underlying profits falling below those of last year. That would come less than a week after announcing that its long-embattled chief executive Peter Sands will exit the bank in June. The results would also follow a surprisingly steep tumble in profits at rival HSBC.
Investors liked the news that Sands was leaving. The bank's shares rallied on the announcement in London last Thursday. Inheriting the troubled post, after months of speculation surrounding Sands' departure, is JP Morgan veteran Bill Winters.
Shareholders may have been the driving force in that appointment, Mizuho analyst Jim Antos pointed out last week, a positive sign for the bank plagued by reports of discontent at Temasek and Aberdeen Asset Management, which own a combined 28.7 per cent stake in it.
But Standard Chartered investors also betrayed nerves over HSBC's results. The stock fell in tandem last week when HSBC announced pre-tax profits dropped 17 per cent year on year. Analysts had expected a 7 per cent decline.
Standard Chartered pre-tax profit is expected to fall 5.2 per cent year on year to US$5.7 billion, according to a consensus of 30 analysts in a Bloomberg poll. But the disappointing results for HSBC augur a similar surprise on the downside for its rival.
HSBC's global banking and markets business suffered greatly in the last quarter of 2014, with revenues falling by 36 per cent compared with the last three months of 2013. Deterioration in markets businesses, such as foreign exchange trading, at HSBC can be read as a warning for performance at Standard Chartered, which has come up against even greater challenges in those businesses, Chintan Joshi at Nomura said in a note.
Standard Chartered investors will also take heed of the rise in impairment charges in HSBC's commercial and markets businesses in Asia in the last quarter of 2014. In Hong Kong, charges jumped to US$162 million between October and December compared with just US$59 million in the quarter before.
Chirantan Barua at Sanford C Bernstein in London pointed out in a note that the jump in impairments in Hong Kong likely signalled a general increase across Asia that could hit Standard Chartered as well.
The two banks are often compared because both generate substantial portions of their revenues in Asia. They have also faced many of the same challenges in financial markets businesses over the past two years and have both been slapped with massive regulatory fines while watching compliance costs eat into profits.
HSBC is already four years deep into a restructuring process aimed at streamlining profits and cutting costs. That is why the plunge in profit for 2014 was so surprising and went beyond most analysts' expectations.
Standard Chartered, under the direction of Sands, relaunched its global strategy in 2013 but was caught in a bind last June when the bank said 2014 profits would likely fall under those of the year before. It was a clear signal that Sands' strategy was faltering less than a year into the process - and was probably one of the heaviest pressures leading up to his announced exit last week.
Sources: http://www.scmp.com/business/banking-finance/article/1728722/standard-chartered-course-follow-hsbc-profit-drop-surprise
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