Winters' Coming Turnaround Is a Long Wait for StanChart

(Bloomberg Gadfly) -- Standard Chartered Plc's shares soared over the past year on hopes that CEO Bill Winters was turning around the troubled emerging markets lender. From Friday's disappointing earnings, it appears investors had run ahead of themselves.

There's still no sign of a return to dividends, and the growth outlook is far from strong. While StanChart swung to a pretax profit of $409 million for 2016, from a $1.52 billion loss a year earlier, the London-based but Asia-focused bank missed forecasts at the operating level. Revenue declined 11 percent to $13.8 billion.

The lender, which has been on a cost-cutting drive since bad loans ballooned a couple of years ago, posted operating profit excluding one-time items of $1.09 billion, below the $1.42 billion estimate of analysts surveyed by Bloomberg. Trade finance income fell 20 percent because of tepid demand and soft commodity prices early in the year. Corporate finance income fared almost as badly, after stripping out 2015's mark-to-market losses on syndicated loans that flattered the year-earlier comparison.

Small wonder that StanChart shares fell as much as 5.4 percent in London morning trading, the biggest intraday decline in three months.

Winters could hardly be accused of sugar-coating his assessment, speaking of a "wrenching year and a half" and a "traumatic amount of change" on a call with analysts, before adding:

"No one harbors any illusions that we are done. We have quite a long way to go, but my soul is intact and we feel very good about our ability to complete the mission." 

For those seeking a crumb of comfort, that's an upgrade on last year's call, when the CEO said that looking at the 2015 results "rips at our souls."

On the heels of HSBC Holdings Plc's less than-glowing fourth-quarter results, the weak earnings shouldn't come as too much of a surprise. For all the deleveraging promised by Winters, the lender seems to have cut back less than it should have, and certainly less than HSBC. Bad-loan problems have yet to be worked out, and India remains a sore spot. 

Given that StanChart's underlying return on risk-weighted assets was a measly 0.3 percent last year -- worse even than some Japanese banks that are grappling with negative interest rates -- investors still have a long wait ahead. Last year, the bank scrapped its goal of an 8 percent return on equity.

Standard Chartered needs to do better on the revenue front to justify its heady share price performance of the past year. Maybe its outsize exposure to Hong Kong will pay off as rising interest rates boost net interest margins in the city. Still, profitability is likely to remain weak in India.

For the emerging markets bank, winter isn't over.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Andy Mukherjee is a Bloomberg Gadfly columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.

To contact the authors of this story: Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net, Andy Mukherjee in Singapore at amukherjee@bloomberg.net.

To contact the editor responsible for this story: Matthew Brooker at mbrooker1@bloomberg.net.