StanChart cautions on Asia recovery

Thu 29 Oct, 2009 11:38

By Kirstin Ridley

LONDON (Reuters) - Standard Chartered (STAN.L), whose focus on Asia has helped it avoid the bailout woes of many European peers, said it was being buoyed by growth across its franchises although the economic outlook remained fragile.

In a third-quarter trading statement published on Thursday, the bank said its key wholesale division -- which caters to corporations, other banks and government agencies -- had seen continued strong income performance, although competitor activity was increasing.

Its consumer banking business, which has been hit by higher loan losses, lower margin lending and less demand for investment products, saw sustained income with strong mortgage performance, cost discipline and improving portfolio credit quality.

"Although economic data and the underlying environment are improving, it remains too early to call a sustained recovery and we remain cautious on the outlook," said Chief Executive Peter Sands.

"However, it is ever clearer that our markets in Asia, Africa and the Middle East are emerging more quickly and stronger than a number of markets in the West."

Standard Chartered provided no numbers and shares traded broadly flat at around 14.82 pounds in morning trade, underperforming a firm DJS European banks index .

Some analysts had upgraded 2009/2010 earnings-per-share (EPS) forecasts ahead of the statement, hoping for a sustained Asian economic recovery, continued robust growth of the wholesale arm and a relatively low bad loans tally.

"Standard Chartered is broadly consistent with our estimates," said Nomura analyst Raul Sinha, adding that a valuation of 14 times estimated 2009 EPS, while justifiable by Asian peer group standards, was nevertheless demanding.

"We would look for (a) better buying opportunity and prefer HSBC (HSBA.L) at current levels," he added.

SCANNING FOR M&A

Standard Chartered kicks off the earnings season for London-listed banks, although it stands far apart. Its limited exposure to western economies has helped it weather the worst of a credit crisis that forced states to bail out some rivals.

Those European rivals -- many of which are restructuring, retrenching and slashing asset portfolios as a payback for government aid -- have left the field free to operators like Standard Chartered, which wants to expand further in fast-growing emerging markets and Asia that already contribute more than 90 percent of profits.

The bank raised 1.01 billion pounds in new shares in August and is eying possible deals in Asia. But it has ended talks with Royal Bank of Scotland (RBS.L) about buying retail and commercial assets in China, India and Malaysia.

Finance Director Richard Meddings said although the bank's strategy was fundamentally based on organic growth, it continued to scan "a significant number" of potential acquisitions. "We clearly remain open to acquisitions and we will look and do look at a significant number of potential acquisitions," he said.

"We will make acquisitions where they can add either skill sets we don't have or can materially accelerate our strategy in particular markets. With regard to the RBS assets ... at this stage we are not pursuing that opportunity."

The bank, which is seeking a listing in both India and China to improve its brand presence and business in local markets, said it expected to come to the Indian stockmarket next year.

"... our current anticipation, subject to market conditions, would be Q2 next year," Meddings told a conference call.

(Editing by David Holmes and Simon Jessop)