StanChart’s Turnaround Performance Is Better Than The Beaten-Down Stock Would Suggest
If you follow the market, you may have already seen that StanChart (Standard Chartered Plc). Bill Winter’s company, has had a bad year so far. The shares of the company have underperformed and they are down at least 10% this year.
The earnings of the company in the first half of the year have decreased even more than HSBC Holdings Plc, its main competitor, because the investors had concerns about the US-China tariff dispute that is currently happening in the market right now and that could drag the profit down.
According to the data, StanChart posted a market-beating 34% gain on profit during the first half of the year (pre-tax) of $2.35 billion, which is the largest profit since Winters took over as the CEO of the company in 2015. This means that while the stocks of the company are down, its profits are up.
The company also seems to be making progress to decide against bad loan risks. According to Winters, StanChart has raised its investments to fight financial crime considerably since 2012 and their team is now bigger.
Before Winters, which arrived in the company in 2015 after working in JPMorgan Chase & Co., the company had a bad reputation for accepting anything and lending to tycoons in Southeast Asia and India, which caused some concerns about the credibility of the company in the market. The situation is better since then.
Another change that the bank made was to replace its Head of Compliance Officer, which raised some concern. After breaching Iran sanction rules in 2012, the company has agreed to stay under the supervision of the US Justice Department until the end of 2018. So basically, the company was in a very bad shape before Winters and had headaches with compliance issues.
The Future Of StanChart
As compliance starts to be a problem of the past and the management of the company decidedly got better after Winters took over, the company has two trends that might be in its favor: higher rates and China’s foreign policy. This means that the net interest margins might keep rising at both the company and HSBC.
According to some analysis made by American media outlets, heavy exposure to China’s belt and road initiative may act as a buffer from the trade war that the two countries are having. At the moment, StanChart is in 47 of the 60-65 belt and road target countries against 44 for HSBC, so the company is slightly ahead of its main competitor.
The Group Chairman of StanChart, Jose Vinals, believes that the bank generates more revenue between China and other countries than for China and the US, so the trade war might not affect it too negatively.
If less transactions are made between the two potencies but the country keeps its edge in the countries in which the belt and road is aimed, it might have a very profitable future, despite what the investors believe. Remember that investors are people that make decisions based on their instinct and their information, not the actual hard data.
It is also believed that even if the Hong Kong real estate bubble burst, the company will not be very affected as it has comfort against possible problems for its recent revenues. Hong Kong is the single greatest market of StanChart, with $828 million USD pre-tax profit, while Singapore only reached $267 million USD and China 236 million USD.
The biggest test of the company will be to keep growing without falling into any of the bad loan traps that put it in a bad situation in first place, but you should remember that most of these deals were before Winters took over as CEO. Other issues include shifting to digital and even using the blockchain technology, which is more prominent in the financial market every day.
Will StanChart continue to increase its profits and regain its place in the market after the stocks go up again? With interest rates climbing, revenue recovering and the quality of the assets improving, StanCharts should be well in the future.