Shares in Standard Chartered dropped more than six per cent today despite the lender posting better than expected quarterly profit.
The Asia-focused bank said underlying pre-tax profit rose 78 per cent to $814m (£613m) for the three months to the end of September compared with the previous year. Analysts had predicted profit of $809m, according to Thomson Reuters data.
However, Standard Chartered's share price closed 6.05 per cent lower at 705p, making it one of the top losers on the FTSE 100, after analysts said higher profits were driven by a drop in provisions for bad loans rather than growing income.
Third quarter income was $3.6bn, up four per cent year-on-year.
Why it's interesting
Standard Chartered has been working through a turnaround procedure after its revenues dropped by $5bn between 2012 and 2016.
Since former JP Morgan banker Bill Winters took over two years ago, he has slashed more than 15,000 jobs, raised more than $5bn in capital and overhauled how the bank makes loan decisions.
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “Exposure to rapidly developing emerging economies with booming populations should make Standard Chartered a high growth (if admittedly higher risk) business. Unfortunately at the moment we’re seeing more of the risk than the growth.
"Income is at best creeping in the right direction, and actually fell slightly on the previous quarter. Meanwhile regulatory tightening is increasing the amount of capital the group has to keep in reserve, while the ongoing cost of meeting the extra regulatory hurdles is growing.
"Long term, the group’s emerging markets exposure should be a positive. But until the group can get income growth motoring, that benefit will be more theoretical than tangible.”
What Standard Chartered said
Chief executive Winters said
We have doubled profits compared to the same period last year as we continue to make progress in realising the potential of the group. We are transitioning our businesses to deliver higher quality income to improve sustainable returns.
This process and the continued investments to support it are reflected in the results and will deliver greater longterm value to our shareholders.
Read more: Standard Chartered in top brass shake up