StanChart shares plummet on almost $1 billion hit from China exposure By Reuters

By Lawrence White and Selena Li

LONDON/HONG KONG (Reuters) – StanChart shares fell as much as 17% in London on Thursday before trading was temporarily halted, after it announced a profit slump driven by a combined nearly $1 billion hit from its exposure to China’s real estate and banking sectors.

The bank said pre-tax profit dropped 33% in the third quarter, far worse than analyst estimates, as it booked a $700 million impairment from its stake in China Bohai Bank, and a $186 million charge from Chinese commercial real estate.

By 0713 GMT, Standard Chartered (OTC:) shares were down 9%, set for their largest one-day fall since Feb. 24 last year, when Russia invaded Ukraine.

The U.K.-headquartered bank, which earns most of its revenue in Asia, booked July-September statutory pretax profit of $633 million. That compared with $996 million a year earlier and the $1.41 billion average of 16 analyst estimates compiled by the bank.

The hefty loss in China, where StanChart has based much of its expansion effort, underlines the challenge it faces to improve returns via exposure to the world’s second-largest economy at a time of slowing growth and widening loss on loans.

A raft of government easing measures have done little to allay China’s economic fragility as crisis in its property market deepens with high-profile debt-repayment defaults and the absence of state support in the sector.

Domestic banking peers have reported squeezed margins while foreign banks, with smaller exposure, have started to take heftier blows as sentiment worsens and the government guides lenders to lower mortgage rates.

StanChart said the hit on its 16% stake in China Bohai, a lender in the eastern coastal city Tianjin, was due to lower forecast interest rates and decreased lending margins reported in the Chinese bank’s half-year results.

China Bohai booked a 17.8% fall in January-June net interest income, leading to a nearly 7% decline in its overall profit, according to company filings.

StanChart’s Chinese real estate exposure totalled $2.7 billion, down $200 million from the previous quarter.

The slump in valuation could potentially renew takeover interest in StanChart, after First Abu Dhabi Bank (FAB) in January this year said it had considered but abandoned a bid.

StanChart has recently had “no contact” with FAB, Chief Financial Officer Andy Halford told reporters on a conference call on Thursday.

‘SOLID PERFORMANCE’ IN OTHER BUSINESS

StanChart said it is confident of hitting its return-on-tangible-equity targets of 10% this year and 11% in 2024, but downgraded some other performance forecasts for the year.

“Investors were expecting a clean set of third quarter numbers, and we do not have that today,” said Jefferies analyst Joe Dickerson.

The “silver lining” for investors was the bank’s underlying business performance – excluding impairment charges – remained solid, Dickerson said in a note to clients.

Net interest margin, a measure of return on lending, will now “approach” 1.7 percentage points rather than be “around” that level, StanChart said.

Rate-sensitive businesses received a boost, with income from transaction banking – the bulk in cash management services – increasing 42%.

Retail products saw 17% income growth, supported by a 50% rise in deposit product income.

In the financial markets trading division, income fell 8% as reduced market volatility curbed client appetite for trading in products related to interest rates, commodities and foreign exchange.