Morningstar | Standard Chartered Confirms $1 Billion Buyback at 1Q19 Result. See Updated Analyst Note from 01 May 2019
As per earlier media reports, Standard Chartered announced a regulatory approved $1 billion buyback along with its first-quarter fiscal 2019 result. Further details on the buyback will be provided but the bank will acquire shares in both London and Hong Kong, depending on market liquidity. The buyback will reduce common equity Tier 1 ratio by 35 basis points. Common equity Tier 1 declined 30 basis point to 13.9% in the first quarter with an increase in risk-weighted asset outpacing profit growth. The increase in risk-weighted assets included one-off impact from accounting changes and management continue to expect net profit growth to outpace growth in risk-weighted assets, reiterating earlier guidance of net risk-weighted assets to increase at 2% annually. The potential divestment of its stake in PT Permata could add around 30 to 40 basis point to common equity Tier 1 and result in further capital return to shareholders, in our view. There is no change in previous guidance of maintaining common equity Tier 1 ratio of 13% to 14%.The bank’s share price reacted positively, up 6% in Hong Kong and 4.6% in London, and our 4-star rating is lowered to 3-star. While we remain positive on Standard Chartered’s turnaround and continue to see value with the bank trading at 11% discount to our unchanged HKD 80/GBX 790 fair value estimate, we do not believe the margin of safety is sufficient.
Aside from the share buyback, the bank’s first-quarter result was generally positive. Operating income was up 2% on a constant currency basis, driven by a strong performance in foreign exchange and rates for financial markets.
Retail banking was weaker against a stronger comparable period last year. This is in line with peers in Hong Kong and Singapore. Management continue to target annual income growth of 5% to 7% over the three years though noted growth this year may come in the low end. The resilient economic conditions saw an improvement in credit quality. As such, credit cost was materially lower and we expect credit environment to remain benign for the remainder of the year.
Standard Chartered is a holding company and an international banking group that serves people and companies across Asia, Africa and the Middle East. Co. comprises a network of more than 1,026 branches and outlets in 63 markets. Co.'s segments are: Corporate & Institutional Banking, which supports transaction banking, corporate finance, financial markets and borrowing needs; Private Banking, which provides a range of investment, credit and wealth planning solutions; Commercial Banking, which provides a range of international financial solutions; Retail Banking, which provides digital banking services. At Dec 31 2017, Co. had total assets of US$663.50 billion and deposits of US$30.94 billion.
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