Standard Chartered plots a recovery

Pruning an overgrown corporate structure and boosting returns were the main themes to emerge from for Standard Chartered (STAN) in its latest pitch to investors. Along with a big hike in the dividend and a new $1bn (£787mn) share buyback programme, the emerging market specialist sounded more serious about rescuing its languishing share price and streamlining its operations. The shares climbed 8 per cent in response to the buyback and cost-cutting plan. 

Achieving 12 per cent returns on tangible equity will be a challenge and will rely on the bank being able to hold its total cost ratio to below its current 63 per cent. Management’s efficiency plan has generated savings by exiting unprofitable markets like Lebanon and Jordan, for instance, and it expects to generate $1.5bn of savings overall. At a reported level, operating expenses were 6 per cent higher at $11.5bn, however. The company aims to keeps its operating expenses to under $12bn through to 2026.

In the meantime, management still talks about “seizing the opportunity in China”, though its exposure there is already a source of impairments. For example, in October last year, it took a $700mn charge on its investment in China Bohai Bank. In these results, the total charge for this seems to have increased to $850mn, though the bank did book a $262mn offsetting gain on the sale of its aviation business.   

The share rally is welcome, though the price is still 40 per cent below the level at which current chief executive Bill Winters assumed control in June 2015. Based on FactSet consensus, the shares trade at a price-to-earnings ratio of 5.6, which is a discount to the peer group, but whether it can really generate significant capital gains is questionable. Hold.

Last IC view: Hold, 752p, 28 Jul 2023