The Motley Fool

Standard Chartered Plc: Just How Bad Is It?

If recent news and results are anything to go by, then Britain’s banks are almost as beleaguered as ever, with those “internationally diversified” ones suffering disproportionately for their adventurism.

HSBC underwhelmed everybody in January with its lacklustre performance and a later “climb-down” on efforts to rein in compensation costs, which is a central tenet of its strategy to improve shareholder value over the coming years. This week it was Standard Chartered’s (LSE: STAN) turn to impress.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

High expectations were few and far between on the ground going into the release however, the bank still managed to jar investors after management reported an 84% fall in profits to $0.8 billion, as bad debts and lower commodity prices bit deeply into earnings.

More details

Looking past the headline numbers, operating income was 15% lower with much of this induced by macro factors such as the value of the US dollar and the fall in commodity prices and thus, this majority is likely to represent a semi-permanent reduction.

However, management have reduced operating costs by 7% ($630m) so far, which should help to offset a large portion of this deterioration, while additional cost savings are still on the blotter for the period ahead. The board also affirmed a strong post-rights balance sheet position, with an almost best in class CET1 capital ratio of 12.6%, while reaffirming the banks’ previous statement that is “in the right markets“.

Ticking the boxes

Flitting through analyst coverage of the sector there appear to be several key themes emerging in terms of what investors expect a bank to have if it is to prosper in today’s world.

External management is one of these things. Tried and tested managers from the outside, not those who have “grown up” under the defunct umbrellas of past regimes. Standard Chartered has this in the form of ex-JPMorgan executive Bill Winters, Barclays has it in Jes Staley.

Another is a “returns over growth” focus which requires that, rather than simply pursuing growth at any cost, a more reserved focus on adequate returns should be imposed in order to improve returns to investors and reduce overall balance sheet risk. Standard Chartered has this in the form of the board’s simplification and balance sheet strategy, which should see it rein in more risky activities in order to focus on its core retail and commercial banking business.

The last common theme is balance sheet and capital, in regards to which, we know that management have pledged to restructure the balance sheet and sought to assure investors that the bank has enough capital to weather any market turbulence or economic deterioration in the interim.

To the extent that us mere mortals can make any determination on bank capital, it is worth bearing in mind that this is a traditionally opaque area for everybody on the outside, where organisations always have enough capital until the moment that they don’t. It also seems a pertinent point that the current regulatory regime is largely untested.  

However, Standard Chartered appears to tick most of the boxes on the analyst wish list. This is while, on a price/tangible net assets basis, the 0.29x valuation of Standard Chartered has never been cheaper even at the height of the emerging market crisis in the 90’s and during the dark days of the financial crisis in the noughties.

The takeaway

It ticks the right boxes with a lot of the scribblers while at this price, China could fall apart at the seams and investors would still be in with a shot at making some money!

Surely the shares can’t be that bad… can they?

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

James Skinner has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.