Standard Chartered shares at turning point

Standard Chartered shares have matched the recent volatility of its boardroom and earnings outlook on Wednesday.

The stock opened slightly higher, fell 2.4%, added 5% before shedding most of that…and so it went on as this article was going online.

The overseas-focused commercial lender said it had cut 4,000 jobs, would halve its dividend and might still need to raise cash after first-half pre-tax profits fell 44%.

But StanChart’s savings plan and six-month earnings that matched expectations gave the bank’s stock its best chance of a sustained rebound for years.

The arrival of a new CEO, no-nonsense Bill Winters from JPMorgan, in June, might not have stemmed a persistent slide in StanChart’s share price but certainly sharpened its focus and communications.

Since then, Winters has stressed the need for a more streamlined geographical structure, and largely taken steps to put that in place.

He’s also shaken up and simplified top management.

StanChart’s negative news on Wednesday was therefore well-trailed, and optimally nuanced, reducing the risk of a deeply negative investor reaction.

Key points

• H1 pre-tax profit fell 44% to $1.82bn
• H1 dividend halved to $0.144/share; FY dividend to be cut by a similar amount, saving $1bn per annum
• Aim to lift core Tier 1 equity by 80 basis points to 11.5%, meeting target of 11%-12% six months early
• Focus on Return on Equity improvement to “minimum acceptable level” of 10% vs. 5.4% in H1
• Cost savings target of $1.8bn by end-2018

StanChart is consequently entering its second-half, in the minds of investors, with the advantage of little significant deterioration in its capital and income than already foreseen.

As for the on-going risk of a potentially dilutive cash call, the bank’s CEO may have provided the next best thing to stating that the risk is now minimal.

He said a capital review was underway to gauge the impact of current bad debts, weak earnings outlook and a much more stringent forthcoming Bank of England “stress test” on StanChart’s exposure to Asia.

The bank plans to publish its findings at the end of the year.

“We will take that body of information and make a decision at the time whether capital is needed,” Winters told reporters.

“If we conclude the bank needs capital, we will seek that from our shareholders,” he said on Wednesday.

Either way, the core capital ratio released on Wednesday was better than City expectations.

It’s not unthinkable that StanChart will now decide it still needs to raise more cash—but it’s far less likely.

Since the risk of a cash call from StanChart was investors’ key dread—the lowered odds of one happening have been signalled in its stock.

The main point in the chart is a potential key-reversal day signalled by the bullish engulfing candle representing the day’s trade so far.

StanChart’s price needs to close higher than it did on Tuesday to confirm it has finally placed a sustainable floor under more than two years of declines.

A 23.6% extension pattern from 2015 lows in February is unlikely to detain the stock should today’s rise follow-through, leaving the 50-day moving average (MA, yellow) as a first target.

Confluence of 100 and 200-day MAs (light blue, dark blue) with a stronger 38.2% level could be a medium term goal.

Wednesday’s 928-930p low is close to levels that provided strong support in February.

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