Standard Chartered Beats With Cost Cuts as Trade Tensions Simmer

(Bloomberg) --

Standard Chartered Plc shares jumped as cost cuts helped the bank beat earnings estimates, helping to allay growing concerns that U.S.-China tensions are clouding the business outlook at the emerging-markets lender.

The bank said costs fell 3% at its half-year results, while highlighting the escalation of the dispute between the two major economies and its broadening into areas of security and technology. The trade dispute between Beijing and Washington are a particular concern to the lender as it earns the bulk of its income in Asia. Citigroup Inc. said last month that corporate clients, particularly in Asia, were being cautious, and said the trade tensions were a factor.

“Trade protectionism is bad for the global economy, and fears concerning this matter continue to affect sentiment across global markets and on the ground in many of our locations,” Chairman Jose Vinals said in the statement. “We look forward to a sustainable resolution of trade uncertainties so that clients can deal with the consequences more confidently.”

Standard Chartered shares rose 4.1% to 704.8 pence at 8:25 a.m. in London trading, after it said earlier adjusted pretax profit for the first-half of the year was $2.61 billion slightly higher than analyst estimates.

It's a “good set of numbers from Standard Chartered,” said Edward Firth, an analyst with Keefe, Bruyette & Woods in London who has an underperform rating on the shares. “However, the fundamental question must be whether this is as good as it gets. The margin has clearly benefited from a positive Hibor in the quarter – a trajectory that is likely to reverse in a falling U.S. rate environment.”

A rise in Hibor, the local Hong Kong borrowing rate, had boosted Standard Chartered's margins in the territory, which is its largest market. Speaking to reporters, Chief Financial Officer Andy Halford said the rise in rates had been positive, but downplayed the significance of the moves.

“I wouldn't call out anything specific there,” he said. Rates had risen over the second quarter and rose sharply in June and early July, before falling back in recent weeks. On Thursday, overnight Hibor dropped by the most it had done in more than three weeks after the Federal Reserve cut rates for the first time since 2008.

The bank's performance has been boosted by a $1 billion stock buyback program announced in April, about $740 million of which is complete, it said on Thursday. Expectations are growing that the lender could announce a further $1 billion repurchase next year, though Halford said in a Bloomberg Television interview that there were “no promises at this point in time.”

“The costs are definitely well under control,” Halford said on BTV. “The important thing for us is the cost control enables us to invest more in the business for the future.”

Earnings Highlights

• Underlying revenue $7.7 billion in the first half, compared with $7.6 billion a year ago. A consensus analyst estimate provided by the bank predicted revenue of $7.67 billion
• Underlying revenue up 0.6% from a year earlier; underlying costs down 2.9%
• Income-to-cost jaws, a closely watched metric, was a positive 4%
• Bank said costs in the second-half to be “slightly higher” than first half

To contact the reporters on this story: Harry Wilson in London at hwilson57@bloomberg.net;Alfred Liu in Hong Kong at aliu226@bloomberg.net

To contact the editors responsible for this story: Ambereen Choudhury at achoudhury@bloomberg.net, Keith Campbell

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