StanChart returns to dividend list

When it reset bank capital return rules in December, the Prudential Regulation Authority said final distributions for 2020 should neither exceed 20 basis points of risk-weighted assets or 25 per cent of cumulative post-dividend profits for 2019 and 2020.

With its annual results, Standard Chartered (STAN) has proposed the maximum possible dividend allowed under the rules, meaning its pandemic year pay-out will likely rise on the prior period. Alongside this, equity holders have been promised a new buyback programme.

Clearly, this shows management is bullish. Strip out payments to holders of preference shares and other equity-like securities, and profits for normal shareholders were $329m (£233m) in 2020. The combined cost of the proposed ordinary dividend and buybacks is $538m.

It’s possible that the largesse spooked the market, which pushed the shares down 5 per cent on the publication of these numbers. Investors may struggle to square the faith in rising income and equity returns with current evidence, even if chairman José Viñals is right to highlight “entrenched positions” in Asia, where economic recovery hopes look brightest.

FactSet-compiled consensus forecasts are for the tangible book value to hit 896¢ per share by December 2021, and 945¢ a year later. However, it is rising earnings that are required to close the wide market discount, not chief executive Bill Winters’ claims that “we were on the right track” to exceed a 10 per cent return on tangible equity before the pandemic hit.

Either the net interest margin compression needs to abate, the cost-to-income ratio drops, or analysts need to revise down their $2bn net income forecast for 2023. Hold.

Last IC View: Hold, 404p, 30 Jul 2020