Standard Chartered denies bid rumours as rising rates buoy income

Standard Chartered (STAN) had been the subject of consistent (and consistently denied) bid rumours in the run-up to these results, as the emerging markets-focused commercial bank looked to deliver on its ambitious recovery plans. A year ago, investors would have been forgiven for asking whether there was any value to acquire as the bank struggled with a host of structural issues. The rise in global interest rates has certainly helped to lift Standard’s leaky ship, along with the rest of the sector. However, the impression remains that without the rise in rates, the bank would still be struggling with endemic problems.

Some of these issues are out of Standard’s control. For example, the huge volatility in the markets last year affected its wealth management business adversely as investors pulled funds, or took advantage of better rates to earn ‘safer’ money in cash. The 17 per cent fall in wealth management income to $1.8bn (£1.5bn) represents a significant chunk of Standard’s reported profit and the sense that this could have been better prevailed. Other issues look more self-inflicted. In common with other big banks, managing interest rate hedging seems to have caused problems, with Treasury revenue down by 47 per cent to $343mn.

On most of its key measures, Standard Chartered came in ahead of expectations. For instance, the reported return on tangible equity (ROTE) at 8 per cent for the year is within striking distance of the board’s 10 per cent target for 2023. With a consensus forward price/earnings ratio of 7.6, Standard is comfortably, if not excitingly, priced to benefit from better rates. Hold.

Last IC view: Hold, 587p, 29 Jul 2022