As I write, the Financial page of the FT website contains no fewer than three negative stories about Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US).
These articles lament Standard Chartered’s failing growth, falling profits, over-ambitious expansion, and even its ‘burdensome’ UK domicile. Almost no aspect of the bank is spared from criticism.
However, from reading the articles, it’s clear that someone inside Standard Chartered is briefing journalists against the bank.
The articles hint at management unrest, and a growing appetite in the City for boardroom change. For my money, this deluge of downbeat stories has been orchestrated by investors and bank insiders ahead of the bank’s half-yearly results, which are due on 6 August.
I should emphasise that this is only my opinion, but such antics are not unknown in the City. It’s also worth noting that Standard Chartered’s share price has remained firm today, suggesting that these problems are already reflected in the bank’s valuation.
The end is nigh?
So is Standard Chartered in trouble? There’s no doubt that bad debts are rising, the bank’s dramatic growth is slowing, and profits are down.
However, despite this, Standard Chartered’s financial performance is likely to be in-line with, or better than, other UK banks this year, judging from last year’s figures:
| 2013 adjusted return on equity |
2013 cost-income ratio |
2013 Common Equity Tier 1 ratio |
|
|---|---|---|---|
| Standard Chartered | 11.2% | 54.4% | 11.2% |
| HSBC Holdings | 9.2% | 59.6% | 10.9% |
| Barclays | 6.4% | 66% | 9.6% |
| Royal Bank of Scotland Group | 4.6% | 64% | 8.6% |
| Lloyds Banking Group | -2.1% | 52.9% | 10.3% |
The problem, of course, is that while the UK banks’ metrics are generally improving, Standard Chartered’s may be getting worse.
Although I am concerned about Standard Chartered’s rising bad debts, which are expected to have risen by ‘a mid-teens percentage’ during the first half of this year, I don’t think investors need to panic.
In my view, what is happening is the inevitable slowdown that always comes after a period of aggressive growth. There may be some short-term discomfort, but I believe Standard Chartered’s long-term prospects remain solid.
Profit forecasts
Financial forecasts are notoriously unreliable, but with that caveat, I’ve used the guidance in Standard Chartered’s recent pre-close update to estimate the bank’s trailing twelve month (TTM) earnings for the period from 30 June 2013 – 30 June 2014.
My calculations suggest that TTM earnings per share may be around 99p, which would put Standard Chartered on a trailing P/E of around 12.2 — not cheap, but not disastrous, either.
Standard Chartered’s dividend yield remains attractive, at 4.2%, and while payout growth is likely to slow, this isn’t a big problem at this level of yield, in my view.
