By Alun John and Lawrence White
HONG KONG/LONDON (Reuters) - Standard Chartered (OTC:SCBFF) PLC on Thursday restored its dividend and reaffirmed its long-term profit goals, in a show of confidence about its ability to recover from the impact of the COVID-19 pandemic even as its annual profit more than halved.
The Asia, Africa and Middle East-focused bank however warned that income in 2021 is likely to be close to last year, showing the challenge it faces to meet its modest profit goals in a world of rock-bottom interest rates.
Boosting revenue has been Chief Executive Bill Winters' main headache in recent years, as slowing growth in many of the bank's key markets, a commodities downturn and low central bank rates all conspired to crush income.
The bank's shares fell 5% in London, as investors looked past the restoration of its dividend to the lender's longer-term challenges in growing income.
StanChart like rival HSBC said it is targeting affluent customers, especially in Asian markets, to try and boost its flagging profit, hoping to earn more fees from wealth management products to offset flat-lining lending returns.
Winters said he has no plans to leave the bank, pushing back on some media speculation he would look to leave soon after six years at the helm.
"I'm here to do a job, and the job is not yet done," he told reporters on a conference call.
The London-headquartered lender also said it would return capital to investors via a 9 cents per share dividend and $254 million buyback, with the total payout being the maximum allowed under temporary 'guardrails' set by the Bank of England.
The central bank last year told Britain's largest lenders to suspend dividend payments and share buybacks for 2020 to help them maintain capital buffers against an expected hit to loan books from the pandemic.
"Having now resumed it, we expect to be able to increase the full-year dividend per share over time as we execute our strategy and progress towards a 10% return on tangible equity," Jose Vinals, Standard Chartered's chairman, said.
The bank also said its return on tangible equity, a key profit metric, would climb from 3% to 7% by 2023.
Analysts at Citi said that the 10% target was achievable if StanChart stayed at the top end of its revenue growth ambitions.
However they described the bank's fourth-quarter results as "underwhelming" in the "context of other UK listed banks, who have largely reported strong results."
StanChart's share performance has in recent years been closely tied to global interest rates, as banks struggle to make returns on loans with base rates near zero.
(Graphic: StanChart's fortunes tied to interest rates, https://fingfx.thomsonreuters.com/gfx/mkt/jznpnomekvl/Pasted%20image%201614237989168.png)
BAD LOANS RISE
StanChart posted a 57% fall in annual profit for 2020, missing analyst estimates, on higher bad loan charges due to the COVID-19 pandemic.
Its pretax profit was $1.61 billion, compared with $3.71 billion in 2019 and the $1.85 billion average of analyst forecasts compiled by the bank.
Credit impairments last year more than doubled compared with a year earlier to $2.3 billion because of the pandemic, the bank said, but noted that two thirds of these charges were taken in the first half of the year.
However, in common with U.S. and European peers, StanChart saw strong performance from its investment bank, as pandemic-related market volatility in 2020 drove frenzied trading.
Income in its financial markets division rose 18%, driven by a 53% increase in income from trading interest rate-related products.
StanChart, which has gone further than many other lenders in saying it will make permanent the flexible working arrangements introduced during the pandemic, also said it could cut a third of its office space in the next three to four years.