LONDON (Reuters) - Standard Chartered Plc reassured investors about its capital strength on Wednesday, raising its dividend despite reporting its first drop in annual profits for a decade and giving a weak outlook for the first half.
Once feted for its exposure to Asia which helped generate years of record earnings, StanChart is now under pressure to show it can adapt to slowing growth and rising bad loans.
The bank said after a challenging year it had cut its bonus pool by 15 percent to $1.2 billion, with Chief Executive Peter Sands’ own bonus down 21 percent to $2.5 million.
It plans to introduce an allowance for hundreds of senior staff this year, which will effectively increase their fixed pay and reduce their bonuses, to meet EU rules that will cap variable pay at 200 percent of fixed salaries.
The bank warned volatile trading conditions would hurt income and profits in the first half, but its shares were lifted by a 2 percent increase in the dividend and a bigger-than-expected cushion against future losses which reinforced the bank’s message that it did not have to raise capital.
“Today’s results are showing that Standard Chartered is challenged ... It’s not giving a particularly bright outlook, it is talking about modest growth markets and volatility and still having to deal with problems in Korea, but the one thing that has been put to bed for the time being is worries about capital and hence dividends,” said Christopher Wheeler, analyst at Mediobanca.
The bank estimated its common equity Tier 1 ratio, a key measure of financial strength, was 11.2 percent under tough new global rules, above estimates of near 10.5 percent.
“At the level we’re at ... we are already significantly and materially ahead of the target ratios the PRA (Prudential Regulation Authority) has guided us to achieve by 2019,” Sands told Reuters, referring to requirements by the UK regulator.
Asked whether he had any plans to raise capital or cut its dividend, he said: “None”.
StanChart shares were up 0.1 percent, having earlier jumped over 4 percent. The stock tumbled 28 percent in the last year, compared with a 19 percent rally by European banks as a whole, and fell this week to near its lowest of the year.
The bank, which makes 90 percent of its profit in Asia, the Middle East and Africa, reported a 7 percent fall in underlying annual pretax profit to $7 billion. It had warned in December profits would fall due to losses in Korea, weak investment banking income and a slowdown in Asian economic growth.
Revenue was flat and provisions for bad debts jumped by a third to $1.6 billion. The full-year dividend payout will rise to 86 cents per share.
The bank said it was still an “exciting growth story” but admitted that growing income by at least 10 percent a year, once a consistent achievement, was now a long-term aspiration.
Market volatility is expected to hit income and profits in the first half of this year and Sands said he expects modest growth in income, profits and loans in 2014. “Market sentiment towards emerging markets is clearly much more negative and jumpy than it was this time last year,” he said.
Having ridden the wave of cheap credit that poured into emerging markets for the past decade, StanChart is now cutting back as foreign money pulls out. It cut 2,000 jobs last year and will sell some smaller businesses.
Sands confirmed the bank was seeking buyers for a Hong Kong consumer finance business, which sources told Reuters last month was valued at between $500 million and $700 million. He said the sale process was at an early stage.
It is also selling consumer finance and savings units in Korea, where it took a $1 billion writedown last year after lenders there were forced to write off personal loans.
The bank swung to a $13 million loss in Korea last year from a $514 million profit a year before, is shrinking loans and has cut 400 jobs and 65 branches there.
“There’s no silver bullet to improving the performance of our business in Korea,” Sands said.
In contrast, profits in Hong Kong, its biggest market, jumped 16 percent to $1.9 billion, or 28 percent of the total.
Sands is streamlining and reorganising his bank to combat the new era of lower growth and to “refresh and sharpen” its strategy to better serve some sectors and product groups and mid-sized companies.
Writing by Carmel Crimmins; Editing by David Holmes