Standard Chartered reported attributable profit of USD 4,786 million for 2012 (USD 1.98 per diluted share), flat with 2012, as the bank absorbed a USD 667 million settlement with the United States related to money laundering charges.
Once again, Standard Chartered’s global network, which we see as the source of its narrow moat, served shareholders well as a slowdown in profits in some geographies (notably India and Americas, U.K., and Europe) was offset by growth in others (notably Hong Kong and Korea), allowing the bank to report an underlying return on equity of 12.8%, well ahead of most Europe-based peers. Investors were pleased to see that although credit costs increased to 0.45% of loans from 0.43% at midyear and 0.38% a year ago, they remained very manageable and well within expected levels.
Once again, Standard Chartered reported near best-in-class capital levels, with a core Tier 1 ratio of 11.7%, an estimated fully loaded Basel III ratio of 10.7%, and a tangible common equity ratio of 6.6%, as we calculate it. In fact, deploying excess liquidity will be a key challenge for the bank in the near term, given slowing economic growth.
With one third of its balance sheet in cash or near-cash assets and a loan-to-deposit ratio of 75%, analysts think profitability is likely to stay near current levels until there is a material increase in loan demand.
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