What's new
■ Full-year income expected to be broadly flat
■ Hit by weak financial market conditions
■ Hefty loss expected at the Korean unit
Asian-focused lender Standard Chartered (STAN) has seen trading weaken as the bank approaches the end of the year. Management said earlier this month that it now expects group income to be broadly flat year-on-year - reflecting tough financial market conditions and weakness in some of the lender's consumer operations.
Standard has seen double-digit income growth at its Hong Kong and African operations, but the bank's consumer business in South Korea remains troubled. Reflecting long-term asset quality problems there, the Korean unit is expected to generate an operating loss of up to $200m (£123m) - although, exclude Korea, and the consumer banking business is still expected to deliver double-digit income growth. Overall credit quality in the consumer bank remains reasonable with loan impairments expected to be only some tens of millions of dollars over those seen in the first half.
Meanwhile, income at the wholesale banking arm has been broadly flat, with a weak financial market performance having been significantly offset by strong levels of client activity. And credit quality is improving - total wholesale impairment charges are currently expected to be below the levels seen in 2012.
Deutsche Bank says...
Hold. The disappointing pre-close statement leads us to downgrade our EPS estimates by 5-7 per cent, which leaves the shares trading on 9.4 times our 2014 earnings estimate (229¢) and 8.7 times our 2015 estimate (249¢). That's a discount to the European bank index, but - while boasting of an undemanding valuation - the weak visibility on revenues and increased credit risk lead us to maintain a hold rating on the shares. What's more, and given there was such a hit to fourth-quarter revenue when tapering in the US did not happen, it's hard to feel good about what might happen when the US does start to tighten monetary policy. Expect an end-2013 dividend of 91¢.
Investec Securities says...
Buy. The unexpectedly weak fourth-quarter revenues in the financial markets side have made a sharp impact on the expected 2013 out-turn. It has also materially impaired market confidence about the scale and pace of the expected recovery in 2014 and beyond. While understandable, we still believe that the case for a strong wholesale unit-led re-acceleration in revenues remains intact - albeit from a lower base than envisaged. We expect sufficient visibility to emerge by 2014's first quarter to drive both consensus upgrades and a re-rating. We see no capital issue at all. Our target price has been cut from 1,900p to 1,700p, but we also anticipate a best-in-sector return on equity of 12-12.3 per cent through to 2014-15. It's the UK's cheapest bank which, in our view, remains an anomaly. Expect EPS for end-2013 of 179.1¢, rising to 239¢ for end-2014.
