Low expectations see Standard Chartered shares jump on profit slump

Added 26th April 2016

Standard Chartered shares spiked 12% in morning trade despite a noticeable dip in its first quarter profits.

Low expectations see Standard Chartered shares jump on profit slump

Standard Chartered announced its Q1 2016 pre-tax profits of $589m on Tuesday, which were down from $1.4bn the previous year, but up from the loss recorded in the final quarter of 2015.

The firm attributed the slump in profits to persistent “depressed commodity prices, volatility in Chinese markets, weak emerging market sentiment” which similarly impacted the British multinational in the final quarter of 2015. For the three months, the bank reported income of $3.3bn, down from $4.4bn recorded in the first quarter of 2015 with all divisions contributing to the fall.

AJ Bell investment director, Russ Mould, remarked that while Standard Chartered’s jump in share price appears counterintuitive, this behaviour can be explained by analysts’ pessimistic profit forecast. “Group revenues fell 24%, profits before losses on bad loans fell 43% and stated pre-tax profit slumped 59% to $589m (£404m), but these figures merely lived down to a low set of expectations. In fact, analysts have been busily cutting their numbers for all five of the FTSE 100’s big banks.”  

The bank’s report also cited the group’s planned restructuring efforts under group CEO, Bill Winters, as a primary reason for the group’s dip in revenue, despite a 10% decrease in total operating expenses and roughly equivalent regulatory costs ($243m) and loan impairment ($471m).

According to a Bloomberg report, the bank intends to sell off at least $4.4bn worth of its Asian assets and hopes to dispose of a portion of its loans from Africa and the Middle East.

Winters insisted that these first quarter figures are in line with the financial institution’s expectations. Although he stressed that Standard Chartered’s “costs remained under tight control and the balance sheet remained strong, liquid and increasingly diverse,” he anticipated the group performance to remain subdued in 2016.

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