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Rare wobble for StanChart as profits fall, bad debts rise

A woman walks down the stairs of the Standard Chartered headquarters in Hong Kong October 13, 2010. REUTERS/Bobby Yip
A woman walks down the stairs of the Standard Chartered headquarters in Hong Kong October 13, 2010. REUTERS/Bobby Yip

By Lawrence White and Steve Slater

HONG KONG/LONDON (Reuters) - Standard Chartered Plc said it could miss its revenue target for the year after an increase in bad debts and a flood of cheap money into Asia hit first-quarter earnings, sending its shares down 5 percent.

The Asia-focused British lender said it was still able to achieve an 11th consecutive year of record profits, driven by strong Asian markets, but it will ease back on hiring to rein in growing wage costs.

The profitability of banks in Asia has been squeezed by quantitative easing in the West and falling interest rates.

While banks have been able to fund themselves at ultra-low rates, they have also been getting little for the large amounts of money they keep with central banks rather than lending out to the real economy or investing in higher-yielding assets.

Operating profit at both Standard Chartered's consumer and investment banking arms fell by about 5 percent in the first three months of 2013.

Revenues in the first quarter were slightly higher than in the first quarter of 2012 and Finance Director Richard Meddings said profit margins had stabilized.

But he said the impact of western monetary policy on Asia was "the key anxiety" that could affect revenues, which Standard Chartered aims to increase by 10 percent a year.

"At this point, we'd prefer to wait to see how May and June land before we give that guidance (of 10 percent revenue growth)," Meddings told reporters on a conference call. "Last year we produced revenue growth of 8 percent and it may be that we're more likely to be at that level."

The bank, which makes about four fifths of its operating profit in Asia and the Middle East, said it was comfortable with analyst forecasts for pretax profit of $8.2 billion this year, up 18 percent from 2012.

It said its performance had weakened in South Korea and in Singapore.

Korea's government has overhauled personal debt restructuring processes as part of a wider social welfare program, which includes more forgiveness on troubled long-term loans, and Standard Chartered said its consumer bad debts there had increased by more than 10 percent, more than expected.

STAFF COSTS GROW

Its London-listed shares were down 4.7 percent at 16.19 pounds by 0639 ET, putting it on course for its biggest daily drop since its shares crashed in August after charges it violated U.S. sanctions against Iran.

"The Q1 trading statement is the first one in a long time in which Standard Chartered is down in operating profit comparisons on a year-on-year basis, both in the wholesale bank and the consumer bank," said Chirantan Barua, an analyst at brokerage Bernstein.

Costs rose on the year, including a "high single-digit" percentage rise in staff costs after the addition of 560 employees in the quarter and wage inflation, the bank said in its trading statement. It does not issue full quarterly numbers and releases earnings twice a year.

Standard Chartered has previously said it could hire about 2,000 staff this year.

"We will still be hiring, the business still has good growth, but we will be pacing the rate of that hiring more acutely until we are more certain of the income run rate," Meddings said.

Hong Kong was once again Standard Chartered's standout market in the first quarter, with income growing more than 10 percent, mirroring a strong performance there reported by rival HSBC on Tuesday.

Income in Africa also rose more than 10 percent.

The bank holds its annual shareholder meeting in London later on Wednesday, when a disagreement over corporate governance could flare with Singapore investor Temasek, its biggest shareholder that holds an 18 percent stake.

Temasek abstained last year from voting to re-elect some directors, signaling a disagreement with how the bank had constructed its board.

The AGM will also be the first since Standard Chartered was hit last year by a $667 million settlement of charges that it violated U.S. sanctions on Iran, Sudan, and other countries. The bank agreed to a deferred prosecution deal as part of the settlement, meaning its U.S. operations are monitored.

(Editing by Miral Fahmy and Tom Pfeiffer)

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