Standard Chartered Plc upped its guidance and announced a bigger-than-expected buyback as it reported fourth-quarter results against a backdrop of speculation around a possible takeover bid from the Middle East.
(Bloomberg) — Standard Chartered Plc upped its guidance and announced a bigger-than-expected buyback as it reported fourth-quarter results against a backdrop of speculation around a possible takeover bid from the Middle East.
The London-based lender said it would start a $1 billion share buyback imminently and proposed a final dividend of 14 cents a share, for a full-year payout of 18 cents, according to a statement Thursday. It said it was optimistic on income growth for this year and next thanks to rising interest rates and a brightening economic outlook.
Chief Executive Officer Bill Winters is trying to bolster his argument that the bank is better off as an independent firm amid potential takeover interest from the Middle East’s largest bank.
“We are upgrading our expectations, and are now targeting a return on tangible equity approaching 10% in 2023, to exceed 11% in 2024, and to continue to grow thereafter,” Winters said in the statement.
Adjusted pretax profits in the fourth quarter rose 21% to $529 million, missing a Bloomberg-compiled analyst estimate of $769.6 million as it took a credit impairment charge of $344 million, due to exposure to China real estate and sovereign downgrades.
The increased guidance and buyback should outweigh the higher credit costs, Jefferies analyst Joseph Dickerson said in a research note.
The lender’s shares rose 3% at 8:29 a.m. in London after its Hong Kong listed shares rose as much as 4% after the results were released.
The bank’s future is under the microscope after First Abu Dhabi Bank PJSC confirmed in January that it had explored a bid for the emerging markets-focused bank. Speaking in Davos last month, Winters said that while the interest from Middle Eastern banks was “quite logical” he added that the lender hadn’t engaged with any potential bidders and didn’t think a deal was likely.
“The thing with Standard Chartered is we are doing very well all by ourselves,” Winters said in a January Bloomberg Television interview. “Everything is on track for us.”
Chief Financial Officer Andy Halford echoed those comments in an interview with Bloomberg Television on Thursday, saying there had been “no contact whatsoever” with FAB.
Read More: Standard Chartered CFO Says ‘No Contact Whatsoever’ With FAB
Since taking over as CEO in mid-2015, Winters has led a radical restructuring of the bank. However, the company’s share price remains below the level when he joined the bank eight years ago leading to frustration among some shareholders.
The bank reported a net loss of $264 million in the fourth quarter, narrowing from last year, weighed down by credit and goodwill impairments. Net interest income rose 19%. The bank’s macro trading income rose 44%, while its income from its wealth business declined 23% in the quarter.
Though the bank is based in the UK, Standard Chartered makes almost all of its money in Asia, Africa and the Middle East. Its largest single market is Hong Kong, which has seen its economy hurt by the impact of pandemic restrictions that have curtailed business in the Chinese territory.
What Bloomberg Intelligence Says
Standard Chartered’s combination of a $1 billion buyback and one percentage point improvement for 2023-24’s return on tangible equity guidance are favorable signals for the road ahead. Management’s updated net interest margin forecast suggests mid-single digit upside to the consensus projection for net interest income this year, though cost of risk volatility remains high on its China real estate, and sovereign debt exposure.
— Jonathan Tyce, BI Banking analyst
–With assistance from Manus Cranny.
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