Standard Chartered drops after annual profit misses estimates

London - Standard Chartered posted annual profit that missed analyst estimates as the bank took losses on a private-equity business that it’s shutting down and said efforts to clean up conduct issues affected performance. The shares fell as much as 5%.  

Pretax profit for 2016 was $409m, compared with a loss of $1.52bn a year earlier, the London-based company said in a statement Friday.

Operating profit excluding one-time items was $1.09bn, missing the $1.42bn average estimate of 13 analysts surveyed by Bloomberg.

Chief executive officer Bill Winters, more than a year and a half into the job, is looking to show he’s stemmed the bank’s losses and can restore a dividend, after a sharp drop in revenue and surging loan impairments in 2015 drove the Asia-focused lender to its first annual loss since 1989.

Winters has also vowed to clean up the culture of the firm, where senior staff flouted ethics rules and considered themselves "above the law."

"We have sharpened our focus on all aspects of conduct," Winters said in the statement.

"The pace and scale of those changes - many of which were done in parallel and required intense periods of adjustment for employees - undoubtedly impacted some elements of the group’s financial performance in the period. But they were the right things to do."

Standard Chartered dropped 4% to 721.2 pence at 9:30 in London. The bank’s shares jumped 85% over the past 12 months before today, the best performance among major European lenders. However, the stock still trades at a steep discount to book value.

'Re-energizing' revenue

Revenue declined 11% to $13.8bn, surpassing the average $13.7bn estimate in the Bloomberg survey. Loan impairments fell to $2.38bn from $4.01bn in 2015. The company said it expects conditions to "remain challenging" this year, though some "headwinds are easing."

"There are still plenty of challenges, obviously, but they’re going in the right direction," said Hugh Young, Asia managing director at Aberdeen Asset Management, one of Standard Chartered’s largest shareholders.

Standard Chartered said it plans to exit its principal finance business, which includes a private-equity unit that manages about $5bn, after that division incurred losses of $650m in 2016.

The bank didn’t declare a dividend, saying its turnaround was still in early stages. The lack of a pay-out "will be taken as disappointing," Sanford C. Bernstein analysts said in a note to clients.

In August, the bank said it would probably miss a profitability target set only last year, blaming an uncertain regulatory and economic environment.

"We recognize the importance of re-energizing growth in income together with strong cost and risk management," chairperson Jose Vinals said in the statement.

"We still have a substantial way to go. The journey will be long and difficult to navigate at times, and there are no short-cuts."

Standard Chartered said its common equity Tier 1 capital ratio, a measure of financial strength, rose to 13.6% from 13% at the end of September. That was higher than the 13.5% average estimate from five analysts.

In his first year in charge, Winters tapped investors for $5.1bn of fresh cash, identified 15 000 job cuts and said he’d restructure or sell $100bn of risky assets.

The new strategy was designed to repair the damage caused by his predecessor Peter Sands’ rapid expansion across emerging markets, which unravelled when those economies slowed and commodity markets crashed, resulting in billions of dollars of soured loans.