Standard Chartered is struggling

The London-listed bank will reveal its full-year figures on Wednesday 4 March, and traders are anticipating a colossal write-down in commodity-related loans.

Standard Chartered bank
Source: Bloomberg

Standard Chartered is staring into the eye of the storm. The emerging markets-focused bank has seen its share price tumble steadily over the past two years and isn’t over the worst of it yet. In the past 12 months the finance house has issued three profit warnings and registered a 20% drop in first-half profits. Dealers are preparing themselves for dreadful full-year figures.

Standard Chartered derives the vast majority of its earnings from emerging market economies, and in particular the Far East. The bank managed to come out from the credit crisis and the eurozone debt crisis relatively unscathed, but the slowdown in emerging economies has caught up with the bank. In the third-quarter, Standard Chartered’s loan book linked to mining companies stood at $61 billion, and that is a 2% decline on the year. The slump in the metals markets is the driving force behind the profit warnings and the bank is expected to reveal a write-down of $3 billion for bad debts. 

The financial institution has already taken measures to restructure itself, while the equities division has been all but shut down, and there were job cuts in the region of 4,000. The most recent shake up was the announcement that CEO Peter Sands will step down in June and will be replaced by Bill Winters of JP Morgan. The bank’s chairman, Sir John Peace, has also come under pressure to step down and will do so next year.

The consensus is for revenue of $18.27 billion, and adjusted net income of $4.06 billion when Standard Chartered announces its first-half numbers. These forecasts represent a 2.66% decline in revenue, and a 16% drop in adjusted net income. The bank will also announce its second-half figures on the same date and the market is expecting revenue of $8.95 billion, and adjusted net income of $1.6 billion. The first-half numbers came in better than expected — revenue was $9.26 billion and adjusted net income was $2.35 billion when dealers were anticipating $9.22 billion and $2.31 billion respectively.

Equity analysts are bullish on Standard Chartered. Out of the 38 recommendations, 12 are buys, 17 are holds, and nine are sells. The average target price is £9.89, which is 2% below the current price. Investment banks are also bullish on HSBC and out of the 42 ratings, 16 are buys, 17 are holds, and nine are sells. The average target price is £6.41, which is 11% above the current price.

The stock has been in a downward trend since March 2013, and it is currently receiving support in the £9.60 region. This coincides with the 100-day moving average and a move below this mark will bring the support at £9.20 into play. Should £9.20 be punctured the next target will be £9, and then £8.70. If the stock remains above the 100-hour moving average then £10 will be the initial target, then the £10.50 area will be brought into play. Beyond that traders will look to £11. 

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.