What Standard Chartered PLC’s Results Really Meant


Banks have been accused of ‘underlyingitis’ — producing various versions of their profit figures to tell the story they want to. So I’ve taken to applying my own consistent, judgemental analysis to banks’ income statements, sifting them into two figures: underlying profits — generally, what the banks would like their profits to be; and statutory profits before the fair value adjustment of the banks’ own debt (FVA) — the warts-and-all bottom line.

Here are the last three years’ results for Standard Chartered (LSE: STAN) (NASDAQOTH: SCBFF.US):

$m 2011 2012 2013
Underlying profit before tax 6,775 7,518 6,958
Exceptional/one-off   items (1,000)
Litigation (667)
FVA 106
Statutory   profit before tax 6,775 6,851 6,064
Statutory profit before FVA 6,775 6,851 5,958

There are refreshingly few adjustments in this table, in stark contrast to the situation for RBS, Lloyds, Barclays, and HSBC.

Indeed, Standard Chartered is the WYSIWYG of UK bank reporting. It’s barely troubled by the arcane accounting treatment of own credit fair value adjustments, and it has little in the way of exceptional items. It paid punishing fines of $667m to US regulators in 2012 over allegations of Iranian sanctions-busting — a controversial subject on this side of the pond — and it wrote off $1bn goodwill in its Korean business.


Unfortunately what-you-see-is-what-you-get doesn’t equate to seeing what you want to see. Standard Chartered’s 2013 results were disappointing, however you look at them. 2013 saw its first fall in profits for over a decade. Much of the decline was due to an increase in loan impairments of more than a third. That’s an old-fashioned banking problem that has some analysts worried about Standard Chartered’s credit quality as it pursued growth. The bank also cited ‘margin pressure’ — fiercer competition and lowered credit quality often go together. Investors’ declining appetite for emerging market risk hit the wholesale division.

These are cyclical, transient factors. The departure of the finance director, lowered profit growth targets, an ill-explained corporate reorganisation, and fears that further growth will need to be sustained by a capital-raising have added to Standard Chartered’s woes. As a consequence the bank’s premium rating compared to the rest of the sector has been much diminished. Ultimately its great franchise in Asia Pacific, Middle East and Africa should see the shares recover.


Banks produce a welter of information and sifting the really important numbers from the fog of data is difficult for even the most expert analysts. I've focussed on the income statement here, but also important are aspects such as balance sheet quality and liquidity.

To help you understand the banking sector, 'The Motley Fool's Guide to Investing in Banks' identifies six key ratios with which to compare the UK banks.  What's more it explains each of the ratios, so you can interpret new results as they are reported.

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Tony owns shares in HSBC and Barclays but no other shares mentioned in this article. The Motley Fool owns shares in Standard Chartered.