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StanChart Restores Dividend and Reaffirms Targets as COVID-19 cuts earnings in half

© Reuters. FILE PHOTO: A Standard Chartered logo is displayed at the Hong Kong headquarters

By Alun John and Lawrence White

HONG KONG / LONDON (Reuters) – Standard Chartered (OTC 🙂 PLC on Thursday restored its dividend and reaffirmed its long-term profit targets to show that it is able to recover from the effects of the COVID-19 pandemic Annual profit has more than halved.

However, the Asia, Africa and Middle East-focused bank warned that revenues in 2021 are expected to be close to last year, showing the challenge of meeting its modest profit targets in a world with rock bottom interest rates.

Revenue growth has been Chief Executive Bill Winters' main concern in recent years, as slower growth in many of the bank's key markets, a downturn in commodities and low central bank interest rates detracted from revenue.

The bank's shares fell 5% in London as investors looked beyond restoring their dividend to longer-term lender challenges in increasing earnings.

StanChart, like rival HSBC, said it was targeting wealthy clients, particularly in Asian markets, in an attempt to grow its ailing earnings in hopes of earning more fees on wealth management products to offset the returns on flat-lining loans .

Winters said he had no plans to leave the bank and pushed back on some media speculation that he would leave soon after six years at the helm.

"I'm here to do a job and the job is not done yet," he told reporters on a conference call.

The London-based lender also said it would return capital to investors through a dividend of 9 cents per share and a buyback of $ 254 million, with the total payout being the maximum permitted under temporary "guard rails" by the Bank of England is.

The central bank last year urged the UK's largest lenders to suspend dividend payments and share buybacks for 2020 to maintain capital buffers against expected damage to the pandemic's loan books.

"After the resumption, we expect that if we execute our strategy and achieve a 10% return on tangible equity, we will be able to increase the dividend per share for the full year over time," said Jose Vinals, chairman of Standard Chartered.

The bank also said its return on tangible equity, a key earnings metric, would increase from 3% to 7% by 2023.

Citi analysts said the 10% target was achievable if StanChart stayed on the high end of its revenue growth ambitions.

However, they described the bank's fourth quarter results as "unconvincing" in the "context of other UK listed banks that have reported mostly strong results".

StanChart's stock performance has been closely tied to global interest rates in recent years as banks struggle to generate returns on loans with base rates close to zero.

(Graphic: StanChart's assets are tied to interest rates, https://fingfx.thomsonreuters.com/gfx/mkt/jznpnomekvl/Pasted%20image%201614237989168.png)

BAD LOANS RISE

StanChart saw a 57% drop in annual earnings in 2020 due to a lack of analyst estimates, reflecting higher bad debt losses due to the COVID-19 pandemic.

Pre-tax profit was $ 1.61 billion, compared with $ 3.71 billion in 2019 and the bank's average analyst forecast of $ 1.85 billion.

Credit impairments more than doubled to $ 2.3 billion last year due to the pandemic. However, the bank found that two-thirds of these charges were assumed in the first half of the year.

However, like its US and European counterparts, StanChart had a strong performance from its investment bank as market volatility caused by the pandemic resulted in frenzied trading in 2020.

The result in the financial markets area rose by 18%, which is attributable to a 53% increase in income from trading in interest-related products.

StanChart, which has gone further than many other lenders, said it will make the flexible working arrangements introduced during the pandemic permanent, also said it could cut a third of its office space over the next three to four years.

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