StanChart `Claws' Toward Earnings Goal Despite Cost Concerns

(Bloomberg) -- Standard Chartered Plc’s Bill Winters is closing in on his return target after three years spent struggling to transform the emerging markets lender, but the bank hasn’t shaken off concerns about costs and growth.

The lender posted the highest quarterly revenue of the chief executive’s tenure and warned expenses may escalate this year. Nevertheless, a 7 percent increase in income suggests Winters, 56, may finally have some momentum behind his turnaround, building on a reinstatement of the dividend and a return to annual profit after two years of losses.

StanChart `Claws' Toward Earnings Goal Despite Cost Concerns

“We are determined to pass that milestone as soon as we can in a safe and sustainable manner,” Winters, the ex-boss of JPMorgan Chase & Co.’s investment bank, said in a statement Wednesday. After posting a 7.6 percent underlying return on equity in the first quarter, Winters said his 8 percent target should be achievable in the “medium term.”

“Slowly but surely clawing their way back,” Hugh Young, Asia managing director at Standard Life Aberdeen Plc, one of the bank’s top shareholders, said about the results.

The shares swung between gains and losses early in London, falling 1.7 percent to 756 pence in London at 9:16 a.m. They’ve dropped about 20 percent since Winters started in June 2015 and have been trailing other European banks for even longer.

StanChart `Claws' Toward Earnings Goal Despite Cost Concerns

Improvements in profitability and capital were “clearly encouraging,” for when the bank reviews the dividend half way through 2018, Chief Financial Officer Andy Halford said on a call with reporters. On a subsequent chat with analysts, he said costs this year may be “slightly higher” as the bank tackles currency movements and increased investment.

The bank also said revenue grew fastest in Greater China and North Asia, which now account for 40 percent of the total, driven by “good momentum” in private banking that posted a 23 percent rise in income and $700 million of new money, according to the statement.

“The key disappointment will be that the strong income start flagged at the full year hasn’t persisted,” Richard Smith, an analyst at Keefe, Bruyette & Woods said, referring to management guidance in February to expect “broad-based double-digit” growth, which failed to transpire.

Part of the reason for this was that a spike in market volatility early in the year -- which boosted trading revenue 2 percent to $724 million, about a fifth of the bank’s total income -- had “moderated” by March, the bank said. CFO Halford said earnings at the business are hard to predict and will “inevitably ebb and flow” with markets.

The bank booked another charge related to a loss-making internal private equity firm, which it has been trying to exit for more than a year after it racked up almost a billion dollars of losses in 2015 and 2016. The principal finance business was responsible for a large chunk of the $70 million restructuring charge in the first quarter, CFO Halford said.

During his tenure, Winters has cut thousands of jobs, raised capital to shore up the balance sheet, and overhauled the compliance systems. Still, the firm remains dogged by misconduct issues, having recently been fined for transferring client assets to help dodge tax transparency rules and placing its head of compliance, Neil Barry, on leave after allegations of misconduct by colleagues, Bloomberg News reported last week.

Halford, when asked about Barry on a call with reporters, declined to comment specifically on the pending investigation.

“One of the real priorities is to make sure that as we turn the business around, it isn’t just about bottom line numbers,” he said. “It’s about how we operate, how we behave, what we expect from our people.”

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