StanChart tests investor patience

Poor relation

Rightly or wrongly, investors tend to treat Standard Chartered as the poor relation of HSBC, the other overseas-facing big bank listed in London. Nevertheless, a recovery story including a cleaned up balance sheet and a return to profits was sufficient to see shares of £25bn StanChart outpace £146bn HSBC for much of this year, despite the latter in many ways representing Europe’s best Big Bank recovery story. The clear differential lasted till the end of July, when HSBC produced another above-forecast profit and announced a share buyback. This inevitably pushed investors seeking exposure to the type of banking markets that the pair specialises in to question any bias for StanChart. 

Chicken, egg

After all, HSBC’s annual dividend payments go back decades and are now being garnished by all sorts of enhancements as the group seeks ways of returning surplus capital to shareholders. StanChart has yet to restart payments after suspending them in 2015. That’s despite pre-tax profit racing 144% higher in Q3 to $774m and after an 82% leap in H1. CEO Bill Winters has repeatedly stated that international capital rules have made his team cautious. That caution is understandable given the parlous state the group was in when he arrived following a string of scandals that culminated in multimillion dollar penalties. But with 60% of assets linked to Asian economies that are growing 6% a year on aggregate the group’s loan growth could be healthier too. In fact the loan book is about 5% lower since 2013. Winters also says a resumption of dividends also depends on “earnings momentum”. An unfortunate chicken and egg conundrum comes to mind.  A 30 basis drop in core capital to 13.6% in Q3 even raises the question of whether StanChart has missed the boat.

StanChart

In any case, major technical chart indications of a loss of investor patience have in face preceded Wednesday’s third quarter earnings by about 2 months. The stock broke below a supportive trend line early in September after struggling with it since the middle of August. Wednesday’s sharp drop of as much as 7% has an added air of finality about it because it also takes the shares below their 200-day moving average for the first time since June 2016. This follows a failure to break above both the lapsed rising trend and also the top side of a September-late October bear flag. Below current prices, 38.2% of the February 2016 – August 2017 rise at 674p, could suggest support, though 573p-612p looks more reliable.