Standard Chartered’s First-half Pre-tax Profit Drops

Standard Chartered PLC (LON:STAN) today posted a 16 percent drop in profit before taxation following a goodwill impairment charge of $1.0 billion relating to Korea. Shares in the British bank, which makes most of its profit in Asia, Africa and the Middle East, opened at 1,528.00p this morning, little changed from yesterday’s closing price.

The London-based lender reported that profit before goodwill impairment and own credit adjustments rose 4 percent to $4.09 billion (£2.67 billion) in the six months ended June 30 from $3.94 billion (£2.57 billion) a year earlier.

However, profit before taxation fell to $3.325 billion (£2.17 billion), down $611 million (£398 million) from the first half of 2012.

The goodwill write-down of $1 billion (£0.65 billion) that hit profit came from the bank’s troubled business in Korea.

The banking industry in the Asian country suffered a 48 percent drop in profit during the first half and Standard Chartered saw a five percent fall in income and a sharp rise in loan impairment.

The bank expects this trend to continue throughout the second half of 2013. The goodwill impairment that Standard Chartered has taken reflects the shift in industry economics – when the British bank entered the Korean market in 2005, the return on equity in the country’s banking industry was 18 percent while now it is around four percent.

While Singapore has been one of the best performing markets for the bank over the recent years, it didn’t perform well during the first half. Income from the division fell three percent and profits were down 12 percent.

Standard Chartered attributed the drop to a sharp reduction in income from its own asset and liability management, pressure on wholesale banking margins and a slowdown in consumer banking. However, the bank has seen good signs in the Singapore market during the second quarter and believes that they will transfer to the second half of the year.

India proved to be a profitable market for the bank during the first half of the year even though the country is facing falling GDP growth and a weakening currency. Income from wholesale banking was up 20 percent – from $567 million (£370 million) during H1 2012 to $682 million (£445 million) for H1 2013.

The consumer banking division contributed $245 million (£160 million) to the income of Standard Chartered which is 10 percent more than in the same period in 2012.