Standard Chartered cuts target as growth slows and regulation bites

LONDON Mon Nov 11, 2013 4:05pm GMT

A woman walks down the stairs of the Standard Chartered headquarters in Hong Kong in this October 13, 2010 file photo. REUTERS/Bobby Yip/Files

A woman walks down the stairs of the Standard Chartered headquarters in Hong Kong in this October 13, 2010 file photo.

Credit: Reuters/Bobby Yip/Files

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LONDON (Reuters) - Asia-focused bank Standard Chartered scaled back its income growth target for the next couple of years on Monday as slower economic growth and tougher regulations bite.

Britain's No. 4 bank by market value, which makes almost all its profit in Asia, Africa and the Middle East, also said it plans to get rid of smaller, underperforming businesses as part of a plan to sharpen its focus on profitability and improve its capital strength.

The bank said its long-term target was still to deliver income growth of at least 10 percent a year, but shorter-term growth would probably be "high single digit".

It kept its return on equity target of at least 14 percent, but said it may not achieve that in the short term either.

"We are unlikely to achieve double-digit income growth for the next couple of years," Finance Director Richard Meddings said at the start of an investor day for analysts.

"In a world where GDP (gross domestic product) growth may slow and regulation and competition are changing, we need to adapt our framework."

The bank said concerns about Asia's economy after a slowdown this summer had been overdone.

"The idea that this correction might turn into a full-blown crisis seems far-fetched. Asia is very different today to what it looked like in 1997/98," said Chief Executive Peter Sands.

Sands predicted global economic growth will rebound next year, led by the United States and China. Asian GDP should grow by 6.5 percent next year and 6.3 percent from 2015-18, including annual growth of 7 percent or more in China, while Africa should grow at 5.4 percent annually, he said.

Standard Chartered has been one of the best performing banks over the last decade, trebling in size and delivering compound annual income growth of 15 percent, but its shares have lagged rivals this year due to the concerns about Asia.

Its shares were up 2.3 percent at 1,518 pence by 1530 GMT, outperforming a 0.6 percent rise by the European bank index.

Chris Wheeler, analyst at Mediobanca, said the bank was showing flexibility in its approach to growth and costs.

"It remains a very well positioned business, but it recognises it has to be relentless in managing capital and other resources to maximise the returns it achieves at the group level," Wheeler said.

CAPITAL STANDARDS RISE

Sands said he intends to maintain an "appropriate buffer" over minimum capital requirements, but said it was not clear what minimum levels will be needed under shifting UK and global rules. The bank had a core capital ratio of 11.4 percent at the end of June.

"We are aware of the sort of shift in sentiment among regulators around the world towards raising capital requirements, and in that context we think it makes sense to put greater emphasis on capital accretion," he said.

As part of that, the bank intends to take a tougher approach to how it allocates capital and investment and will rein in costs and axe businesses.

Sands said that could see the bank shed small operations in some countries, or areas that lack synergies with other parts of the bank. Last year it closed its retail bank in Japan and Sands said it was selling retail banking in Lebanon.

A far bigger underperforming asset is in South Korea, where the bank wrote down the value of its business by $1 billion (626 million pounds) this year and plans to restructure the business. It has had a hard time there after paying $3.3 billion for First Bank in 2005, and said a turnaround will take time.

Standard Chartered typically aims to increase costs by the same pace as income rises, but said it will target lower cost growth in the next year or two.

(Additional reporting Francesco Canepa; Editing by Louise Ireland and Louise Heavens)

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