Standard Chartered Posts Another Strong Quarterly Result

Standard Chartered posted another strong quarterly result with income rising across most client segments and geographies against the same period last year. However, growth has slowed on a quarterly basis with most client segments seeing a slight decline in revenue. Still, higher treasury and corporate finance income underpinned income growth in Europe and Americas while core markets in North Asia were up 2% against last quarter, and South Asia was flat. Overall underlying profit before tax increased 16% to USD 1.2 billion, translating into a 160 basis points improvement in return on tangible equity, or ROTE, to 8.9%. The bank continues to track toward its ROTE of at least 10% by 2021 though achieving the target may be challenging in a low interest rate and slowing economic growth environment. We reiterate the focus is on continued operational improvement and the bank is benefiting from its earlier restructuring effort. Operating expense was up 1% on a constant currency basis and guidance of below inflation growth was maintained. Our forecasts factor in a reasonable increase in operating expense in the fourth quarter, in line with guidance of higher investment spending in the latter half of the year. Our income forecasts are adjusted slightly lower to factor in slightly weaker net interest margins and offset by time value of money, our fair values of HKD 80 is unchanged. Our fair value for the U.K. listing is lowered to GBX 810 from GBX 860 assuming current exchange rate.