After disappointing outings from Barclays (BARC) and RBS (RBS), Standard Chartered (STAN) set the benchmark for 2019 bank earnings, after a strong first-quarter trading update beat profit expectations and revealed a surprise buyback plan.
The emerging-market-focused lender told investors it had recently received approval to retire $1bn (£767m) of its shares, in a major show of management confidence after a decade of legal headaches and fines, and just three-and-a-half years after a £3.3bn rights issue.
The repurchases, the bank’s first in two decades, are part of chief executive Bill Winters’ goal to generate a full-year return on equity of at least 10 per cent by 2021. In the first three months of 2019, the underlying return on tangible equity came close, swinging to 9.6 per cent from a loss of 1.9 per cent in the final quarter of 2018.
Investec’s Ian Gordon said that while welcome, it was “highly unusual for a bank to announce a share buyback programme with a quarterly interim management statement”, particularly in the context of a 0.3 percentage point decline in the common equity tier one (CET1) ratio to 13.9 per cent. Standard Chartered added that the buybacks were likely to wipe a further 35 basis points off the CET1 ratio before the half-year.
However, the board waved through any near-term dip in balance sheet strength, confident that a final $186m charge has resolved “all material legacy conduct and control issues”.
This, together with a net credit of $44m and a 77 per cent quarter-on-quarter drop in credit impairments to $78m, meant statutory pre-tax profit rose 5 per cent to $1.2bn, or 7 per cent on a constant currency basis. The bank also saw a 2 per cent dip in operating expenses, a 5 per cent increase in interest-earning assets, and signs of improved sentiment in its markets.
