Standard Chartered announced a $1bn buyback as the emerging markets focused lender tries to boost returns and repair its flagging share price.
The move marks the first time in a generation that StanChart has bought back its shares and represents a shift in direction for a bank that has traditionally used excess capital to invest in growth opportunities.
The Financial Times first reported in November that StanChart was preparing to buy back shares, but the plans were delayed after it took longer than expected to resolve a probe into sanctions violations in the US. The bank eventually settled the investigation earlier this month by paying fines totalling $1.1bn.
“The resolution of our legacy conduct and control issues means we can now manage our capital position more dynamically,” said Bill Winters, StanChart chief executive.
He added: “We will maintain our strategic investment programme and start to buy back $1bn of our shares.”
Investors reacted positively to news of the buyback, sending the bank’s London-listed shares up by 4.2 per cent. The shares have lost about 35 per cent of their value since Mr Winters took over in 2015, leading a clean up of its balance sheet and improving its compliance procedures after several years of runaway lending.
Andy Halford, chief financial officer, said the bank’s decision to buy back its shares would not necessarily restrict its ability to invest in high-growth Asian and African markets — where it generates the vast majority of its profits. He insisted there was not a “binary” choice between the two.
“We see various ways to grow [assets] and make returns to shareholders; there should be space to do both,” Mr Halford said on a call with reporters.
StanChart announced the buyback as it published first-quarter earnings that were ahead of analysts’ forecasts.
Underlying pre-tax profits of $1.38m were 23 per cent above consensus estimates and 10 per cent higher than last year. Net profits of $818m were up 1.9 per cent versus a year ago.
However, profits in the first quarter were supported by very low levels of impairments, which stood at $80m versus $215m a year ago, and better cost control.
Revenues fell 2 per cent versus a year ago to $3.8bn, which StanChart attributed to “less buoyant” conditions in the first three months of 2019 compared to last year. The poor top-line performance will make it harder for the bank to hit its target of increasing revenues by 5-7 per cent this year.
Joseph Dickerson, banks analyst at Jefferies, also questioned the composition of StanChart’s revenue, pointing out it had been supported by a very strong performance from traders in its volatile markets unit while growth in its more stable cash management business had slowed.
“The bottom line is that financial markets lines are offsetting deceleration in higher multiple businesses such as cash management,” Mr Dickerson said.
On an underlying basis, StanChart’s return on tangible equity was 9.6 per cent in the first quarter, although that figure is likely to fall in subsequent quarters of this year.
Mr Halford said StanChart’s full-year underlying ROTE tended to be between 60 and 70 per cent of its first quarter number, putting the bank on track to achieve underlying returns in the region of 5.8 and 6.7 this year — well below its medium-term target for returns above 10 per cent.
On a statutory basis, the bank’s ROTE was 8.1 per cent in the first quarter.