Takeover of Standard Chartered plans, targets cost cuts after shortfall

Standard Chartered Plc will return $750 million to investors through a share buyback despite missing estimates, as the bank seeks to boost profits with cost cuts and higher interest rates.

Adjusted pretax profits for 2021 rose 55% to $3.9 billion, missing a company-compiled estimate of $4.3 billion, driven by a $300 million writedown on its investment in the China Bohai Bank, according to a statement from the London-based lender on Thursday.

The bank announced a 5% increase in operating expenses for the year. Standard Chartered warned last year of rising staff costs due to higher performance-related pay, exacerbated by intense competition between banks. Speaking last month, chief executive Bill Winters said the lender needed to look for savings across its business to limit spending as the lender is forced to pay for “expensive talent”.

Chief Financial Officer Andy Halford said in an interview with Bloomberg Television on Thursday that the overall bonus pool has grown “significantly,” particularly in wealth management. “We’re probably up a quarter from last year.”

The Asia-focused lender said it aims to cut $1.3 billion in “structural” costs through 2024 to create more room for investment and will target earnings growth of 8% to 10 %, down from 5% to 7% this year, in part as higher interest rates boosted earnings. The bank presented an optimistic outlook as it announced further rate hikes by major central banks.

“We committed today to a set of far-reaching actions, to deliver a tangible return on equity of 10% by 2024,” Winters said in the statement. Standard Chartered also plans to invest $300 million in China to generate profits in the Much of that money will be spent on expanding wealth management operations in the country, Halford said in a phone interview. .

The shares fell 3.7% to 528.2 pence at 12:01 a.m. in London.

Rate expectations

Shares of the lender have been on a year-to-date run, with stocks boosted by Bank of England rate hikes and expectations that the Federal Reserve will raise US rates this year. Low rates have hit industry margins for years, with an internal Standard Chartered calculation finding that the low rate environment has cost the company about $1.5 billion in lost revenue.

The share buyback plan was less significant than some had expected. Last year, Standard Chartered announced a $250 million buyout and a $0.09 dividend – unchanged for 2021 – which disappointed investors. The bank was expected to correct that to these annual results, analysts at Jefferies International Ltd. going so far as to predict a $1.7 billion buyout based on the amount of excess capital they said the lender would have on hand.

Lower credit write-downs contributed to higher earnings for the year as a whole. They fell to $263 million last year from $2.3 billion in 2020 when bad debts spiked during the pandemic.

In June, Winters will celebrate his seventh anniversary as CEO. Over the past 12 months, he has tried to refocus investors’ attention on the bank’s investments in digital projects, such as its virtual bank in Hong Kong and online banks in Africa. Like rival HSBC Holdings Plc, Standard Chartered is targeting the growth of its wealth management business in Asia as a source of future earnings.

“It’s going to be a company that’s clean, it’s clean, it’s got a tidy balance sheet, it’s well-disciplined, it’s well-focused, and people, I think, will look back on the last few years and say it was pretty tough. .task to go fix a business that had some issues and then go through Covid,” Halford said.

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