Standard Chartered (StanChart) has unveiled its largest-ever share buyback of $1.5 billion and has raised its income outlook for 2024, driven by anticipated strong economic growth in its key Asian markets and a strategic plan to control costs.

The London-based bank, which generates the majority of its revenue in Asia, now forecasts operating income growth of over 7% on a constant currency basis, up from its previous estimate of 5% to 7%. This update follows a 5% increase in pretax profit, reaching $3.49 billion for the first half of the year, slightly exceeding the consensus estimate compiled by the bank.

StanChart’s substantial buyback, improved guidance, and detailed cost-cutting strategy, which aims to save $1.5 billion, reflect CEO Bill Winters’ commitment to boosting the bank’s stock performance, which has lagged behind its peers. “I don’t think our share price reflects the optimism that we and I have for our bank,” Winters stated during a media call on Tuesday.

Following the announcement, StanChart shares surged 5.9% in London trading, bringing the stock’s gains to 18% since Winters expressed dissatisfaction with the bank’s share price in February. Despite this rise, StanChart still trails the 23% increase of Europe’s benchmark STOXX banks index of 600 lenders.

Global banks with a focus on Asia, such as StanChart and its competitor HSBC, have benefited recently from higher interest rates and stronger economic growth and wealth creation in the region. However, the slowing growth and property sector crisis in China have posed challenges for Western banks. StanChart has set aside $1.2 billion this year for potential bad loans in China’s commercial real estate sector.

Despite Beijing’s policy measures to support the property market, signs of recovery remain limited. “We are seeing the signs more in tier-one cities than elsewhere, but the [property] market clearly has not found the floor yet,” noted Chief Financial Officer Diego De Giorgi.

Winters indicated that the bank’s approach to China is unlikely to be significantly influenced by the upcoming U.S. election on November 5. “Whoever wins the U.S. election is likely to be hawkish on China,” he said, suggesting that continued external pressures on China’s economy and trade might encourage further opening up, which could benefit StanChart.

The bank is moving forward with its “fit for growth” cost-cutting initiative, aiming to save around $1.5 billion over three years amid rising expenses due to inflation and business expansion. StanChart has identified over 200 projects to achieve these savings, with 80% expected to reduce costs by up to $10 million. This includes eliminating the region-based reporting system and reducing the number of internal apps as part of a technology simplification effort.

In the first half of the year, StanChart experienced significant growth in non-net interest income streams as major economies prepared for changes in rate policies. The wealth solutions unit saw a 25% increase in income to $1.2 billion, the most significant growth among the bank’s main businesses. Net new sales in this unit more than doubled to $13 billion, with wealth assets under management rising 12% to $135 billion.

However, StanChart missed out on the second-quarter trading boom reported by Wall Street peers, partly due to the absence of an equities trading business. While competitors like JPMorgan and Morgan Stanley reported significant revenue growth in this area, StanChart’s investment bank income fell by 1% in the second quarter.

(Adapted from MorningStar.com)

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