Asia-focused bank hit by problems in Korea, rising bad debts and staff costs

Standard Chartered has disappointed investors with a drop in first quarter profits, making the Asia-focused bank the biggest faller in the leading index.

It said both commercial and wholesale banking operating profits were down by around 5% – “down by a mid single digit percentage” – hit by increased loan impairments after problems in Korea, an increase in bad debts, and rising costs after recruiting 560 staff in the quarter.

Its shares have dropped 91.5p to 1608.5p on the news, down 5.38%. But the bank said it had started the second quarter with April income back at the trend level and it remained comfortable with forecasts for the full year. Analysts were also positive. Ian Gordon at Investec said:

At first blush there are plenty of hooks for bears in this morning’s statement, which will likely trigger a sharp sell-off today. However, this requires implicit rejection of management’s reaffirmation of comfort with a 2013 consensus pretax profit forecast of $8.2bn (up 19% year on year). We are 1% below ($8.1bn). Weakness today should be seen as an opportunity.

Gary Greenwood at Shore Capital said:

Standard Chartered has issued a relatively downbeat first quarter trading statement in which it reports that group operating profit was “slightly down” for the period versus the prior year comparative. This was primarily owing to weak revenue performance with income only “slightly ahead” of the prior year comparative owing to margin pressure in trade finance and lower ALM (asset liability management) income. The prior year comparative was also strong, notably in principal finance. In our view, this reflects increased competition from foreign banks (notably French and Japanese) and the impact of ongoing monetary policy action, in our view, notably impacting on performance in March.

The outlook is more encouraging, with the company noting on the analysts’ conference call that growth in income and profit was back at “trend levels” in April (i.e. double-digit) and that management therefore remains comfortable with full year consensus (statutory) forecasts despite the weak first quarter performance.

We believe recent share price weakness associated with concerns around current trading should be used as an opportunity to pick up stock.

Overall the FTSE 100 has paused for breath after hitting a new five year high on Tuesday, edging up 0.60 points to 6557.90.

J Sainsbury has slipped 2.9p to 393.6p as investors decided to cash in after a 6.2% rise in full year profits.

Accountancy software specialist Sage has climbed 6.3p to 345.6p following a 6% profit increase.

A number of companies have seen their shares go ex-dividend including Antofagasta, down 50p at 939.5p.

Among the mid-caps, hedge fund group Man has fallen 4p to 121.5p after a 0.1% dip in its key AHL fund last week.