Banking and financial services. Standard Chartered employs 38,000 people in 950 locations in more than 50 countries in the Asia Pacific Region, South Asia, the Middle East, Africa, the United Kingdom and the Americas. Standard Chartered is one of the worlds most international banks, with employees representing 80 nationalities. It serves both Consumer and Wholesale Banking customers. Consumer Banking provides credit cards, personal loans, mortgages, deposit taking and wealth management services to individuals and small to medium sized enterprises. Wholesale Banking provides corporate and institutional clients with services in trade finance, cash management, lending, securities services, foreign exchange, debt capital markets and corporate finance.

Red = 25 day moving average. Green = 200 day moving average.

Interim results part 1

Reported results1

· Profit before goodwill impairment and own credit adjustment is up 4 per cent at $4,088 million, from $3,936 million in H1 2012 (H2 2012: $2,915 million)
· Reported profit before taxation after goodwill impairment charge of $1,000 million relating to Korea is $3,325 million. Reported profit attributable to ordinary shareholders2 is $2,131 million
· Operating income excluding own credit adjustment is $9,751 million, up 4 per cent from $9,371 million in H1 2012 (H2 2012: $9,412 million) and up 5 per cent on a normalised basis3
· Customer advances up 3 per cent to $292 billion from $285 billion in H2 2012 and customer deposits marginally lower at $381 billion from $385 billion in H2 2012

Performance metrics3
· Interim dividend per share increased 6 per cent to 28.80 cents per share
· Normalised earnings per share up 5 per cent at 121.9 cents from 116.6 cents in H1 2012 (H2 2012: 108.7 cents)
· Normalised return on ordinary shareholders' equity of 13.3 per cent (H1 2012: 13.8 per cent, H2 2012: 12.4 per cent)

Capital and liquidity metrics
· Tangible net asset value per share increased 9 per cent to 1,537.9 cents (H1 2012: 1,414.1 cents, H2 2012: 1,519.9 cents)
· Core Tier 1 capital ratio at 11.4 per cent (H1 2012: 11.6 per cent, H2 2012: 11.7 per cent)
· Advances-to-deposits ratio of 76.6 per cent (H1 2012: 77.6 per cent, H2 2012: 73.9 per cent)
· Liquid asset ratio of 28.3 per cent (H1 2012: 28.3 per cent, H2 2012: 30.5 per cent)

Significant highlights
· Delivered broad based performance across multiple markets, including excellent performances from Hong Kong, India and Africa
· Profit before taxation in Hong Kong was over $1 billion for the first time in a six-month period
· Income of over $50 million in 25 markets and 17 markets delivered double digit growth
· Strong volume growth with market share gains in key products, including trade finance volumes up 18 per cent and cash FX volumes up 30 per cent
· The Group remains highly liquid and well capitalised
· Re-opened in Myanmar and announced the acquisition of a custody business in South Africa
Commenting on these results, the Chairman of Standard Chartered PLC, Sir John Peace, said:
"These results demonstrate the diversity and resilience of our business. Despite a difficult external environment, we continue to support our clients' growth aspirations. We have a strong balance sheet and ample liquidity. Income in both businesses accelerated in the second quarter and we have entered the second half of the year with good momentum. The Board remains confident for the long term."

Interim Management Statement

Peter Sands, Group Chief Executive, commented,

"In the third quarter, we delivered a resilient performance despite an uncertain macro environment, with continued strong levels of client activity and good volumes across many of our markets. Our diversity by market, product and industry has underpinned our performance in the quarter, as has our ongoing tight control of costs and risk."

For comparative purposes, the following commentary excludes the impact of the UK bank levy, now estimated to be around US$260 million, the Own Credit Adjustment, the impairment of goodwill in respect of Korea and the payment of US$340 million in the third quarter of 2012 to the New York State Department of Financial Services ('NY DFS').

'Year to date' refers to the nine months ended 30 September 2013 and comparisons are made to the same nine month period in 2012 unless otherwise stated.

The resilience of the third quarter performance was underpinned by continued strong client activity despite a volatile market environment. The quarter started well but slowed as usual in August. The difficult market conditions that arose in August also had an impact on September.

As in the first half, Consumer Banking has continued to grow income at a mid single digit percentage for the year to date. In Wholesale Banking, Client Income also grew at a mid single digit rate for the year to date, with strong volumes offsetting a lower margin environment than 2012. The key pressures on year to date performance are the ongoing weakness in Own Account income and continued market uncertainty.

Since the Group's interim results, there has been some depreciation in a number of emerging market currencies including the Indian Rupee and Indonesian Rupiah. Based on current rates, the full year impact would be some US$200 million on income and around US$70 million on profits.

Against this backdrop, the Group overall has grown income at a low single digit rate year to date, with income in the quarter down by a low single digit percentage compared with the third quarter of 2012.

Our income performance remains broad based by geography, client segment and product. Hong Kong and Africa have delivered strong performances and continue to grow income and profit at double digit rates for the year to date. These strong performances have offset weaker performances in Korea and Singapore where income in both markets declined by single digit percentages for the year to date.

Costs remain well controlled, and have grown in line with income in the year to date, despite accommodating significant increases in regulatory and compliance costs, and continued investment in the businesses. Costs in the quarter were broadly flat on the third quarter of 2012.

For the full year, we now anticipate a non-recurring tax related cost in Korea of some US$60 million.

Total impairment for the Group in the third quarter was below the first half run rate, at less than US$300 million, although it was ahead of the levels seen in the equivalent quarter of 2012 by some tens of millions of dollars. This reflects, in the main, the continued elevated loan impairment levels in Consumer Banking and limited impairment in Wholesale Banking.

Early Alerts have remained at broadly the same levels as in the first half of 2013. For the last couple of years we have said that we remained watchful in India where we have further tightened our underwriting criteria. We continue to keep our portfolio under tight control given the prevailing macroeconomic conditions.

As a result, the Group's operating profit for the year to date was up by a low single digit percentage when compared with the prior period.

The balance sheet remains strong, diversified and highly liquid.

Pre-close Trading Update

Canaccord Genuity Sell 1,327.25 - - Reiterates

JP Morgan Cazenove Neutral 1,327.25 1,750.00 1,500.00 Reiterates

Nomura Buy 1,327.25 1,810.00 1,690.00 Retains

Deutsche Bank Hold 1,327.25 1,645.00 1,645.00 Retains

Looking at it first drop in profits in a decade, problems in South Korea and certain currency issues. Looking at volume the outlook for the bank is now unclear and downgrades yet to be felt. I've gone short @1312.19, 1228 being last years low I think will now be tested.

Crumbs! Can't trust any Share these days can we.

Short position closed for a nice profit.

Shortie, I've been short from @1390 - 1400/1450 long gone.

I still think this has further to fall with 1228 to be tested. I'm not sure how long this will take though so have decided to move on. If the possibility of a rights issue fizzles out then the stock may even rally back to support.

Just closed here +102.

Good profit, you changed your view then?

Not really to be honest, but I've taken a couple of largish points positions off the table today.

I'm still looking to the short side, but have had 3 FTSE longs and only 1 FTSE short yesterday and today and I'm not short atm - which I may regret looking at it now.

Investec has lowered its target price for Standard Chartered from 1,900p to 1,700p but has retained its 'buy' recommendation, saying that it doesn't see any capital issues at the emerging markets-focused lender.

Analyst Ian Gordon said that the recent debate about capital which has weighed on the share price in recent weeks has been "contrived", highlighting that the bank's fully loaded Basel-3 core tier-1 capital ratio stood at 10.5% in June - "the strongest of any UK bank". "We expect sufficient visibility to emerge by Q1 2014 to drive both consensus upgrades and a re-rating. We see no capital issue at all."

Ian Gordon of Investec :
We have always (historically) had a rather long list of reasons why Standard Chartered will never become a serious M&A target – its (former) premium valuation, a “Management premium”, size, complexity and an absence of obvious deal synergies. Indeed, depending on the identity of any would-be bidder, we can envisage significant dis-synergies! That list may have become a little shorter, but surely M&A talk is only being entertained today due to the market’s current (and we believe temporary) mispricing of the shares? BUY.
CEO Peter Sands has (rightly) put his neck on the line by dismissing speculation of a possible rights issue as “rubbish”. As discussed in our report, Everyone seems to know the score, they’ve seen it all before?, 13 January, Standard Chartered starts from a position of extreme capital strength, (CET1 CRD IV ratio of 10.6% at 30 June 2013 vs 2nd placed HSBC (Buy) on 10.1%). Moreover, on our forecasts, we see the CET1 CRD IV ratio expanding to 11.3% by 2016e notwithstanding our expectation of sustained asset growth (coupled with recovering RoRWAs). We concur with Peter’s assessment.
Peter has also dismissed recent M&A speculation as “rubbish”. On the basis that we fail to see a convincing case for material deliverable revenue or cost synergies, we are inclined to agree. Indeed, Standard Chartered’s rare status as an International bank with (arguably) local bank characteristics (and privileges) presents quite material transactional risks. We do not expect a bid.
Yet STAN currently trades on just 7.6x 2016e EPS, making it, in sharp contrast to history, THE cheapest UK bank. In our view, either the share price upwardly corrects to reflect our, (or even consensus), expectations, or M&A speculation may still be encouraged by an opportunity to obtain value WITHOUT clear deal synergies. This in itself offers share price support. Also, regulatory anomalies such as the UK bank levy now offer a deal rationale which never used to exist."

Credit Suisse note:
"We have been negative on the stock for some time now, and STAN has been one of the worst performing banks globally over the past 12 months. Given this underperformance and some of the positive aspects of its franchise, we expect greater M&A discussion. Fundamentally, however, with the shares at 1.3x PTNAV (2014E) we remain Underperform, and our TP is unchanged at 1,250p.
■ The attractions: The group has derated from 2.0x P/B to 1.1xP/B, and we are going through a period of management change, potentially making the group more vulnerable. Furthermore, we view several parts of the franchise as attractive, in particular the deposit base (1H13 LDR 77% with CASA of 51%) and the transaction / trade finance business.
■ The challenges: The market cap is still $54bn and the group has $650bn of assets, so the pool of potential acquirers with sufficient size is small. Regulation has increased, with a bias against banks getting bigger via items such as GSIFI charges, which makes deal maths less favourable. The outlook for several of the group's markets has also deteriorated over time.
■ Our conclusions: (i) Potential suitors are most likely to be in Asia, with ANZ, major Chinese banks (ICBC, CCB) and Japanese banks (MUFJ, SMFG) the largest, (ii) ICBC and CCB would find it easier to digest STAN given their relative size, it would be a merger of equals for ANZ, while the deal maths appear better for the Japanese banks, (iii) a deal would likely have to be equity funded, and hence would require significant issuance by an acquirer ($50bn+), (iv) dilution would be significant without sizeable synergies.
■ Fundamentally we remain U/P: We see risk to the capital base and greater uncertainty from the group reorganisation. On capital, we estimate UK peers will be at 12.6% CET1 by 2015E vs STAN at 10.2%. To achieve 12% CET1 by 2015, STAN's capital would need to be US$7.5bn higher."

Pre-close trading update

StanChart third-quarter profit tumbles, an extra $400 million in cost cuts eyed

LONDON (ShareCast) - Analysts at Numis Securities and Investec have cut their target prices for shares of Standard Chartered after the emerging markets-focused bank warned that second-half underlying profits would be below last year's.
The stock fell sharply on Tuesday morning after StanChart issued its second profit warning this year after third-quarter pre-tax profits fell 16% to $1.8bn. In August, the company had predicted that underlying profits would improve in the second half.

Numis has trimmed its target from 1,400p to 1,200p and downgraded its rating for the stock from 'add' to 'hold', saying it had reduced its forecasts for this year and was reviewing its forecasts for the next.

Analyst Mike Trippitt highlighted "subdued income momentum and higher third-quarter impairments, a higher bank levy, plus regulatory and restructuring costs".

He now expects StanChart to generate $5.81bn in pre-tax profit for 2014, 6% lower than his earlier $6.18bn forecast and below the $6.06bn reported in 2013.

Meanwhile Investec analyst Ian Gordon lowered his target from 1,450p to 1,350p, but still recommended investors buy the stock.

While costs and impairments were higher than expected, he said that StanChart had "encouragingly" delivered a slightly-better-than-expected revenue performance, with turnover up 1% year-on-year.

"We believe that the primary source of investor disappointment over the past 18 months has come on the revenue line [...] As such, we do not expect to be disappointed vis-à-vis our current forecast of a 3% H2/H2 revenue improvement," he said.

Soc Gen note:
"Update We cut our target price 25% to 1085p from 1450p and our recommendation from 'Buy' to 'Hold'.
Standard Chartered has faced a number of revenue headwinds over the past year. Now it seems that costs are starting to bite as well (wage inflation, compliance costs), and we wonder if a more aggressive approach is needed to tackle this problem. Relative to its returns, Standard Chartered looks inexpensive against both European and Asian peers, but we do not expect this value to be realised over the next few quarters.
SocGen view The cost miss was particularly disappointing given that the revenue headwinds finally seem to be easing, and Q3 revenues were actually slightly up. We would expect that this margin progress will be sustained as trade margins improve and FICC comparatives become easier. Offsetting some of that margin progress, however, is a loan book that is flat on the year as underlying growth is offset by a tougher approach on clients taking only the low return products, and continued shrinkage in South Korea.
How we value the stock We use a sum-of-the-parts model to derive our 1085p target price. Our lower TP reflects the earnings downgrades plus lower multiples applied to the wholesale businesses to reflect our view that management looks likely to opt for business-as usual changes rather than a more aggressive plan. We value each division separately, using our estimates for sustainable returns, cost of equity and long-term growth. Standard Chartered trades at 0.91x 2014 tangible book value for a forecast return on tangible equity of 11.6%. To reflect the trends mentioned above, we have cut our EPS forecasts by 9%/10%/13% for 2014-16 respectively.
Events, catalysts & risks: Standard Chartered is participating in the Bank of England’s UK bank stress test, the results of which will be announced in December. We expect Standard Chartered to pass, and note that the BoE’s tougher macro scenario versus the EBA’s European test centres around UK property exposure, to which Standard Chartered has little. Possible upside risks to our target price include a more aggressive approach to restructuring (particularly the cost line) than we expect, and perhaps some M&A speculation given the group’s weak share price. Downside risks to our target price include further problems in the Chinese commodities sector (which would push up impairments) or any delay to the timetable for US rate rises (which would be negative for the margin)."

StockMarketWire.com
Standard Chartered has booked FY pretax profits, including exceptional items, of $4.24bn, down 30% on the year. It recorded losses from bad loans of $2.14bn, from $1.62bn.

Operating income fell 2% to $18.23bn.

Chairman Sir John Peace said:

"2014 was a challenging year and our performance was disappointing, but it was also a year when we took decisive action to refocus our strategy and to reposition the Group for the future and to restore shareholder value."

CEO Peter Sands commented:
"We are reshaping the Bank to respond to the way our world has changed and to ensure we fulfil our aspiration to bank the people and companies driving trade, investment and the creation of wealth across Asia, Africa and the Middle East.

"I leave Standard Chartered proud of what we have achieved and confident about what the future holds for this extraordinary institution."