Standard Chartered shares tumble 10% after China exposure hits profits

Standard Chartered (LSE: STAN) weathered a significant blow, with its third-quarter profits plummeting by 54% to $633 million due to the bank’s exposure to the volatile Chinese banking and real estate sectors. The Asian-focused lender’s sharp decline in profit, below the $1.41 billion forecasted by analysts, has disappointed investors, resulting in a 10% drop in shares in London and a 9.8% decline in Hong Kong.

The bank’s operating income did show a glimmer of hope, rising by 4.5% to $4.52 billion from the previous year’s $4.33 billion. However, the stark drop in profit was largely attributed to increased credit impairments, soaring from $227 million to $292 million, which included additional charges linked to the beleaguered Chinese commercial real estate sector.

Furthermore, Standard Chartered booked an impairment of approximately $700 million related to the diminished value of its holdings in China Bohai Bank, reflecting the subdued earnings and challenging macroeconomic outlook in China. This impairment further exacerbated the bank’s profit woes.

Despite the setbacks, Standard Chartered remains steadfast in its annual targets. CEO Bill Winters expressed confidence in the bank’s performance, stating, “Wealth Management has continued its recovery with double-digit income growth, and the Financial Markets performance has been resilient against a strong comparator period. We remain highly liquid, and well-capitalized, with a CET1 ratio towards the top of our target range and confident in the delivery of our 2023 financial targets.”

Looking ahead to the remainder of 2023, Standard Chartered reiterated its expectations, foreseeing a 12% to 14% increase in income at constant currency. The bank also maintained its projections of a net interest margin averaging about 170 basis points throughout the year, with the aim to achieve a return on tangible equity of 10%.