Standard Chartered shrugs off Dubai, set for record profit

Thursday, December 10, 2009
LONDON: Asia-focused bank Standard Chartered said any losses it suffers in Dubai were unlikely to be material and it was on track for a record profit this year.

The London-based bank said on Wednesday that in the 11 months to the end of November it had delivered a strong performance, with “record levels of income and operating profit before tax”.

Finance Director Richard Meddings said he was comfortable with analysts’ average forecast for a 2009 trading profit of $5.1 billion, up 6 per cent from $4.8 billion last year.At 0913 GMT its shares were unchanged at 1,437 pence, outperforming the DJ Stoxx banking sector index, which was down 0.6 per cent.

The bank’s shares have fallen more than 12 per cent since Nov 25 when Dubai announced it would ask creditors for a debt standstill for two of its flagship firms, which raised concerns about the bank’s exposure to Dubai and the United Arab Emirates.

“The situation is fluid and in its early stages, but given the profile of our exposures, we don’t expect any impairment to be material,” Meddings said. It was too early to pinpoint actual losses, he said.

The bank’s loan book to the UAE was about $12 billion, including just $400 million to commercial real estate. “It is very well spread and well diversified across multiple customer accounts,” Meddings said.

Investors have been unsettled by a lack of detail on where exposures to Dubai World lie and by the risk of the problems spreading. British banks have $50 billion of loans to the UAE, out of the country’s total of $123 billion owed to international banks, according to the Bank of International Settlements (BIS).

The bank’s update was “consistent with a small beat against market expectations, demonstrating its ability to take negative factors from Dubai in its stride,” said Ian Gordon, analyst at Exane BNP Paribas.

Income growth has been driven by a “very strong” performance in wholesale banking, offsetting lower income in consumer banking. It expected 2009 income growth to exceed cost growth.

It said its markets were returning to growth as economic conditions improved, but it was too early to forecast a sustained recovery. The bank and its UK rivals could be hit with a tax on bonuses later on Wednesday, according to government sources. The most likely option is a levy on banks that pay bonuses, akin to employers’ National Insurance contributions.

“We are absolute advocates of performance-related pay and incentivised performance. It’s the way to incentivise high energy levels and high performance for the benefit of the bank as a whole and its shareholders,” Meddings said. He declined to comment on what the UK government may announce and said the bank adhered to agreed guidelines on pay by the G20 countries.

Standard Chartered has weathered the financial crisis better than most rivals, thanks to relatively healthy capital and liquidity and its exposure to faster growing and less troubled Asian economies.

It made a first-half pretax profit of $2.8 billion, up from $2.6 billion a year earlier. Growth has been fuelled by its wholesale arm, which accounted for 80 per cent of first half-profits after a 36 per cent jump. The bank is targeting annual wholesale revenue growth of at least 15 per cent through the cycle, Meddings said. Group net interest margins had fallen “fractionally” since June, it said, while a one-off tax charge of up to $200 million announced in October was now expected to be slightly lower.