By Steve Slater
LONDON, Sept 17 (Reuters) - Standard Chartered said it expects to double profit in its core wholesale bank to more than $10 billion in the next 4-5 years as its key Asian markets grow faster than the West and it builds on market share won when its rivals retrenched.
Its rate of growth is expected to slow from its compound annual pace of 23 percent over the past decade due to the economic slowdown, tougher regulation and scale of its business, but still marks a pace most rivals would envy.
“It’s not unreasonable for us to be looking at a $10 billion (operating profit) number (in 2016),” said Mike Rees, head of wholesale banking.
“We firmly believe that is not an unreasonable aspiration for us to have if you look at the potential,” he added, referring to the countries the bank works in and the size of the wholesale banking revenue pool, estimated to grow at more than double GDP growth.
Standard Chartered’s wholesale banking business, which houses its investment banking and includes trade financing, corporate lending, foreign exchange and M&A advisory, accounts for more than three-quarters of its profit and has underpinned strong growth in the past decade.
The unit made a record $5.2 billion profit last year - driving group profit to a record $6.8 billion - up from $800 million in 2002. Its profit has typically doubled every three years, and Rees said in a presentation to analysts and investors on Monday that he expects it to double again by 2016.
London-based Standard Chartered has been one of the industry’s star performers in recent years, with its shares and profit growth easily outperforming most rivals, but the bank was rocked last month when it agreed to pay $340 million to New York’s bank regulator over transactions linked to Iran.
It was a hastily arranged deal after the regulator shocked the bank and investors by calling it a “rogue institution” that had broken U.S. sanctions on Iran.
The initial revelation sent the bank’s shares tumbling, and they are down 4 percent from before the news. By 1420 GMT its London shares were up 0.5 percent at 15.13 pounds, valuing the bank at $58 billion.
Standard Chartered, which started life financing trade between Europe and Asia and Africa in 1853, said it was confident on prospects as it had built up scale across the region and expected growth in China, Indonesia and across Asia to outpace the west.
It has also won market share in areas like trade finance during the financial crisis as rivals retreated to home markets. Big European lenders like BNP Paribas and Societe Generale cut their lending to Asia in the last two years to improve their capital and liquidity positions.
The competitive landscape has changed dramatically in Asia, and Rees said he expected four or five big international banks to remain strong there, citing HSBC, Citigroup and J.P. Morgan. Local rivals have stepped up to win business, he said.
His bank’s income should continue growing at more than 10 percent annually, he said.
Its bullish forecasts and plans to add up to 1,500 staff this year are in contrast to many rivals as the investment banking industry is under intense pressure.
Revenues for the top 10 investment banks in the first half of this year fell 8 percent from a year ago, according to analysis group Coalition.
Firms are slashing jobs as regulatory change and economic slowdown hit profits, prompting HSBC, Deutsche Bank and UBS to streamline or overhaul operations to make them more profitable and leaner.