StanChart: Positive Call, Bullish Outlook

Standard Chartered’s (STANLN: A3/BBB+/A) conference call was, for a business which had previously been linked with China, CRE and credit fears, almost totally focused on the revenue beat and guidance from here. Spreads have performed very well YTD but these results still feel bullish, in our view.

• Revenues were well above consensus with good performances from the wealth business and also the corporate & investment bank with specific mentions for macro and credit trading. Further, the deal pipeline is better now than a quarter ago. NII looks to be stronger than expected, even in a lower volume world.
• Credit quality and loan losses were almost absent from the discourse. Firstly, non-performers were better and the level of provisioning on China CRE is high (over 50% now). Secondly, mgmt did indicate it’s currently running below “through cycle” loan loss levels and we should expect some normalisation. This is a clearly more bullish message than some had feared.
• Capital: it’s notable that, on current expectations of capital generation vs. equity payout, the bank will close on the top end of its CET1 range during this year (13-14% range, 13.6% just reported). That capital accretion is a credit positive but mgmt did indicate that, even at higher equity prices, it was still minded to pursue further buybacks. So, a more balanced picture for credit.