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Standard Chartered profit tops forecast

Standard Chartered, which makes three-quarters of its profits in Asia, said on Tuesday it made a record pretax profit of $4.04 billion last year, up from $3.18 billion in 2006 and above the average forecast of $3.92 billion in a Reuters Estimates poll of analysts.

Growth was spearheaded by a recovery in Hong Kong — which became its first country to report annual profits of over $1 billion — and strong growth across wholesale banking.

The bank took a $300 million writedown on its exposure to risky assets, including a $116 million hit on its Whistlejacket structured investment vehicle, but the total was modest compared to losses at other major banks.

It said 2008 had begun “amid almost unprecedented market volatility”, but that it had made an excellent start to the year, particularly in wholesale banking.

“They’re talking about double digit (income and earnings) growth, which you’re not hearing too often (in the banking sector) at the moment,” said MF Global analyst Simon Maughan.

Standard Chartered shares were up 6.7 percent at 16.86 pounds by 1147 GMT, the biggest rise in the FTSE 100 index. The stock has beaten the DJ Stoxx European banks index by 37 percent over the past year due to the bank’s relatively light exposure to slowing U.S. and European economies.

“We’re very much open for business, our markets are open for business, but it’s about being alert to the nature of risks,” said Peter Sands, Standard Chartered chief executive.

“We wouldn’t assume that our markets will be unaffected by any slowdown in the west, but we see them as having much greater resilience than in previous cycles,” he told reporters on a conference call.

Sands said he remains open for more acquisitions to boost growth, following a string of purchases in recent years, but it was too soon to tell if market turmoil will throw up more opportunities to buy assets at knock-down prices.

“The thrust of our strategy is organic growth, but we are constantly on the lookout for acquisitions that complement organic growth,” he said.

Hong Kong shines

Standard Chartered said its operating income jumped 28 percent to $11.1 billion, while expenses rose 30 percent to $4.8 billion after investment in China, India, private banking and elsewhere to take advantage of growth opportunities, it said.

Underlying costs rose 24 percent, just ahead of underlying revenue growth of 23 percent. Cost and revenue growth are likely to be broadly in line with each other in 2008, Sands said.

Profits from Hong Kong jumped by one-third to $1.2 billion, with consumer banking reporting income growth of 17 percent — its best for over six years — as wealth management and small and medium business banking grew strongly, and wholesale banking there grew by 50 percent.

Profits in China rose 72 percent to $184 million, as the bank almost doubled to 38 locations. It plans to have at least 60 locations by the end of this year as it attempts to build ”meaningful scale and breadth”, it said.

Indian profits jumped 71 percent to $690 million, mostly due to a jump in wholesale banking business there.

But Korea, where Standard Chartered made its biggest ever acquisition in 2005, remained a problem area, with profits tumbling 29 percent to $324 million.

It was hit by one-off items, but underlying profits also fell and mortgage lending and margins were depressed. The bank said it has changed management there and plans to reshape the business.

“I’m confident we’ll get it back on track in 2008,” Sands said, adding he did not regret the acquisition as it would be “a very big profit engine” in future years.

Wholesale banking now accounts for 58 percent of group profit as its growth continues to outpace the consumer bank.

The bank said its entire exposure to asset-backed securities (ABS), including collateralised debt obligations (CDO), was less than $6 billion.