Standard Chartered PLC Earnings Call Insights: Group Level Revenue and Guidance Details

Standard Chartered PLC (NASDAQ:STAN) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

Group Level Revenue

Tom Rayner – Exane BNP Paribas: Apology, I missed the first sort of – just the first minute of your speech, so if you have answered this, apologies. Just wondering double-digit revenue at Group level, is that something that you still think is realistic given what you’ve seen in the latter part of the first quarter? I know that you have reconfirmed sort of consensus at pre-tax level, just wondered if your thoughts have changed on the top line and also could you just add a bit more about Singapore, because I think this is the second time Singapore has being flagged out as a particular area of weakness. So just wonder what’s – what you could add to what’s going on there, please?

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Richard Meddings – Group Finance Director: Yeah, okay. I think the top line picture is quite clear that March was a more difficult month for reasons we talked about, partly timing. So Principal Finance income didn’t arrive. If you look at our pattern, I mean it’s a lumpier business, so our pattern tends to have $100 million plus a quarter, effectively realizations in Principal Finance, we’ve had virtually – we have very, very low, I mean minimal income realizations in Principal Finance in this first quarter. That I think is predominately timing and we also saw a step down in the margins, but those margins have stabilized and the volume that we are seeing and that we are booking are very good indeed and I can talk about that a bit later if you would like. Corporate Finance resolute, so we’ve got very good indicators for how the business is currently running and we’ve indicated that April is more in line with our, what we call, our trends, so double-digit income growth and profit growth in April. As we look out, we’re only now at the end of April. As I think about income, our income performance last year was 8% on an headline basis constant currency 10%. I think it’s more likely to be around that level, but I’d like to see May and June, I think before we give formal guidance around the income outlook.

Tom Rayner – Exane BNP Paribas: And Singapore?

Richard Meddings – Group Finance Director: Yeah, on Singapore, it is actually a market where in the wholesale side, first, the comparable period had a significant – cover significant transaction in the first quarter last year. It is also if you think about it as a hub market in our business, and therefore, Own Account pressure is particularly in FM trading, you’d also see come through in a more sort of concerted sense in Singapore. Overall, in many ways it’s a developed market and as you look at that and (did go) across the Consumer Bank, we’ve seen margin compression broadly across all asset categories of the Consumer Bank. So I would say you’ve got the picture consistently with the Group on the cash and trade margins, you got a slightly worse outcome on Own Account, but of it sort of hubbing – I’ll call it hubbing presence and you’ve got margin compression across – you’ve got margin compression across the Consumer Banking product set. Our results in Singapore are very much in line with local bank results, if you look at how they’ve been doing.

Guidance Details

Ian Gordon – Investec: Can I ask two please? I mean firstly on the more encouraging April guidance. I wondered if you could provide a little bit more color on the components of that. You’ve already referenced the stabilization in margins. But I wondered if you could perhaps give a bit more granularity on the strong flows you are seeing in financial markets as well as perhaps some geographic comments on the contribution from Corporate Finance which seems to represent well over 20% of Wholesale Banking revenues in 2013 and beyond. Then secondly, perhaps just a comment on wholesale impairments, I am assuming that simplicity in your full year PBT guidance is an assumption that Wholesale Banking impairments will be stable or better versus 2012, is that fair?

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Richard Meddings – Group Finance Director: So, if I take the WB impairments point first, we are saying – with our original budgeted expectations for Wholesale Banking panels, if anything, we are more confident that that will be outperformed. But as you know, Wholesale – we talk many times in Wholesale Banking impairment is much more difficult to forecast, but we are not seeing any signs of pressure across the portfolios. We’ve had minimum provisions to-date. So I don’t want to give you specific guidance as to a number, but actually the good thing is we are seeing no pressures. If I then go to April, again, let me not give you specific April apart from to just reiterate that we’ve seen sort of good double-digit income growth over April ’12 and profit growth. So back to good trend, and it’s pretty broad-based, so no unusual items or particularly significant transactions in that. Where did that come from? Well, I think your question about sort of volumes in FM and so on are interesting. If you look at our FM business, what we see in cash effects is volume is up over 30%. In FX options, we’ve got volumes up over 50%. In interest rate we’ve got volumes up over 60%. But offsetting that we have a spread compression of around 30% on cash, 25% or so on FX options and just high 30% in rate. So you’ve got a picture of significant spread compression, but very good levels of client activity and volumes. April, I think, has benefited then if you’d think about trading cash. It’s benefited in the fact that we are seeing very good again asset builds and volumes. So I think one of the things that happened was Chinese New Year came late February. The market went quite. It came back slightly more slow we thought in volumes but has been accelerating. We are building good net increases in our – if you call, annuity books in trade and cash and in a picture where margins have broadly stabilized across the Group and that’s coming through quite nicely into April. The only reason I think where there is still negative trending in margins is Northeast Asia. I think it’s (not only the) Chinese Bank liquidity, but more broadly, the picture for the Group overall is of a sort of moderating with stability and coming into the margin through our fundamental businesses. So there are no one-off items coming through and (I know) it’s an exceptionally large items for many particular areas, it’s broad based. I mean our Corporate Finance continued to perform well, stable margins, very strong volumes in trade, very strong volumes in our FM businesses. That’s really what’s coming through in April.

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