Here’s how Standard Chartered PLC (SEHK: 2888) did for the first half of 2020 and what management expects for the future. –
Standard Chartered PLC (SEHK: 2888) has been hit hard by Covid-19. Due to pandemic’s effects, the bank was pressured into suspending its dividend by the Prudential Regulation Authority.
As a result, its shares have declined substantially. Given the low prices and Standard Chartered recently reporting its interim results for 2020, is there reason to be optimistic?
Here’s how the bank did for the first half and what management expects for the second half.
For the first half of 2020, Standard Chartered faced several headwinds including low interest rates, and low oil prices. The bank’s key profit centre, Hong Kong, also went into a deep recession.
As a result of the headwinds, Standard Chartered reported a tough first half of 2020. Profit for the period fell 29% year-on-year to US$1.066 billion.
Return on tangible equity fell 240 basis points to 6% and net interest margin (NIM) narrowed to 1.4% versus 1.66% in the first half of 2019.
Meanwhile, credit impairment was US$1.567 billion, versus US$254 million for the first half of 2019.
In terms of the dividend, Standard Chartered did not declare one but the company said that:
“The Board fully recognises the importance of dividends to its owners and we hope to reinstate them as soon as prudently possible.”
For the quarter, the bank had a strong liquidity position with a 14.3% CET1 ratio.
In terms of its outlook, Standard Chartered believes second half income could be lower year-on-year and half-on-half due to certain headwinds. The bank elaborated:
“The benefits of the early stage recovery in some of our markets and our geographic and product diversity are unlikely to be enough to offset the impact of low interest rates and the probability of less buoyant conditions for our Financial Markets business”.
Nevertheless, Standard Chartered also believes that second-half impairments could be lower than first-half impairments if economic conditions don’t materially deteriorate.
In terms of its global macro outlook, Standard Chartered believes the global economy will emerge out of recession in the coming quarters but that economic activity across the bank’s operations could be uneven and volatile.
What might lie ahead
Much of Standard Chartered’s troubles were due to the coronavirus outbreak. Many of the headwinds such as low rates, low oil prices, and recessions were either caused by or worsened due to Covid-19.
Since Covid-19 is very likely temporary, there could be an opportunity, especially if a successful vaccine is developed.
In terms of a potential vaccine, some think that it could be approved as early as this year.
If things return closer to normal, I think the odds of Standard Chartered reinstating its dividend increase substantially.
Once that happens, many dividend investors could cycle back into the stock and the stock could rally.
The road to a full recovery could take fairly long, however. Although GDP could rapidly rebound thanks to government policies, low rates might last for a while.
Standard Chartered’s first-half results were fairly poor due to the coronavirus outbreak.
Management expects the second half to remain fairly challenged. In the long run, however, Standard Chartered has a lot of potential for long-term investors.
- How Tencent Could Benefit from Potential US Ban on China Tech
- 3 Tech Stocks That Are Thriving Despite Coronavirus
- How is China’s Central Bank Challenging Alibaba and Tencent?
- OCBC’s Latest Results: Challenging Times Ahead
- Swire Pacific Shares: Ready for a Turnaround?
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Jay Yao doesn’t own shares in any companies mentioned.
The Motley Fool Hong Kong Limited(www.fool.hk) 2020