Standard Chartered likely hit by bad loan provisions in Q1 results

Standard Chartered will unveil its first quarter (Q1) 2020 results on Wednesday 29 April, with investors likely left disappointed by its latest earnings due to significant bad loan losses and weaker-than-expected income growth as a result of the Covid-19 crisis.

The bank’s underlying momentum in the fourth quarter of 2019 continued in the opening weeks of 2020 but lower interest rates, slower global economic growth, a softer Hong Kong economy and the impact of the coronavirus is expected to drive income growth in 2020 below medium-term 5% - 7% target range.

‘These headwinds are expected to be transitory, but we now believe it will take longer to achieve our RoTE target of 10% than we previously envisaged,’ Standard Chartered said.

Challenging market conditions have hurt the bank’s earnings and dragged its share price lower in 2020, with the stock down 47% year-to-date and capable of trading lower in the weeks ahead.

Standard Chartered is trading at 378p a share as of 16:00 (GMT) on Monday.

Barclays maintain ‘underweight’ rating for Standard Chartered

Analysts at Barclays remain underwhelmed by Standard Chartered in 2020, reiterating its ‘underweight’ rating for the stock and lowering its price target to 425p per share.

Barclays justified its assessment of Standard Chartered by pointing to its earnings challenges for 2020 and beyond into next year, though conceded that it and fellow lender HSBC could both benefit from a ‘sentiment rebound if Asia emerges from Covid-19 earlier’.

Speaking more broadly about the impact of the coronavirus pandemic on UK banks, analysts at Barclays said that while ‘potential for losses is high’ it believes that bank shares ‘effectively price in a severe downturn’.

‘We estimate current valuations imply £70bn of aggregate losses for our UK banks, or 50% off domestic bank capital,’ Barclays said in a note.

‘We expect a combination of painful rate cuts and weak activity to drive pre provision profits down circa 20% year-on-year,’ Barclays added. 'Likely strong Q1 trading income could prove to be an aberration.’

PRA requests UK banks suspend dividend

Much to the disappointment of shareholders, Britain’s largest lenders complied with guidance from the Bank of England (BoE) and suspended dividend pay-outs in 2020.

Barclays, Lloyds, Royal Bank of Scotland, HSBC, Santander and Standard Chartered all said that they would cancel their dividends for the 2019 financial year and agreed to refrain from making any pay-outs to shareholders in 2020. The banks even promised to cancel any share buyback initiatives too.

The Prudential Regulation Authority (PRA), the supervisory division of the BoE, welcomed the dividend cancellations and not having to take any formal action against any UK banks.

The PRA hopes that by keeping cash on lenders balance sheets, rather than in shareholders pockets, it will help the industry offset some of the impact of the Covid-19 crisis.

The regulator also expects banks not to pay any cash bonuses to senior staff over the coming months.

How much does it cost to buy UK shares with IG?

There are three ways to ‘buy’ UK shares with IG: spread betting, trading CFDs or buying physical shares. The cost will depend on which method you choose. The table below illustrates how the costs to get exposure to £10,000 of Lloyds stock, which is equivalent to 16,000 shares (quoted at 62.5p a share).

Remember, spread bets and CFDs are derivatives, which come with higher risk and reward than investing.

Cost to get exposure to Lloyds stock

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Note: Amounts do not include overnight funding charges and taxes. Spread bets are not subject to tax. CFDs are free from stamp duty, but subject to capital gains tax. Share dealing is subject to both stamp duty and capital gains tax.