Citibank: Standard Chartered Group (02888)'s earnings before tax for the second quarter beat expectations, strong wealth management business performance

The Zhitong Finance App learned that Citibank released a research report saying that Standard Chartered Group (02888)'s profit before tax for the second quarter was US$2.3 billion, 13% higher than market expectations, and revenue was 3% higher than expected. It was mainly driven by wealth management business (16% higher than expected), banking business (6% higher), and transaction services business (3% higher), partly offset by slightly lower market and treasury business expectations. Operating expenses were 2% lower than expected, and loan impairment was 37% lower than anticipated. The common equity Tier 1 capital ratio was 14.2%, up 80 basis points from quarter to quarter, 50 basis points higher than market expectations. Citi maintains Standard Chartered's “Neutral/High Risk” rating, with a target price of HK$223.

Citi pointed out that Standard Chartered's wealth management business performance was once again impressive. Wealth Solutions revenue increased 43% year over year based on fixed exchange rates. Among them, investment products increased 56% year over year, and bank insurance revenue increased 9% year over year. The net amount of additional capital added to wealth management reached US$15 billion, and the scale of asset management for wealthy clients increased 7% quarterly. The bank said that Standard Chartered's revenue target for the 2026 fiscal year was slightly raised, but the increase was lower than the bank's expectations, while other targets remained unchanged. Management now expects revenue growth at a median of 5% to 7%, net interest income expectations have been raised from flat to low unit growth, the loan impairment range remains 30 to 35 basis points, and the return on authorized equity remains above 12%.

Citi believes that the better-than-expected performance of Standard Chartered's costs and impairment provisions may not be sustainable. The former is driven by one-off factors, while the latter needs to be contrasted with rising warning indicators. However, non-net interest income driven by the wealth management business alone was better than expected, which was enough to push the market to raise earnings per share forecast by a low number of units. The bank believes this also has positive implications for HSBC Holdings (00005).