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In 2020, Asia and wealth management were big buzzwords for global banks trying to address concerns about slowing growth elsewhere. Standard Chartered was among a long list of lenders that bet heavily on wealth management income from markets such as mainland China to drive growth. StanChart is among the few that has managed to deliver on its promise.
The London-headquartered lender on Tuesday reported second-quarter pre-tax profit of $1.83bn and raised its outlook for income growth for this year. Operating income from wealth solutions rose a quarter in the first half, a record performance as net new sales more than doubled to $13bn. This is an impressive feat: it has been up against strong competition from local Chinese banks as it tries to win mainland Chinese clients and from rival HSBC in Hong Kong.
The wealth management business in Asia — especially in Hong Kong, Singapore and mainland China — remains one of the most promising areas of growth for global lenders. It will offer an estimated $81tn onshore opportunity in terms of personal financial assets by 2027, according to McKinsey research. There is room for lasting growth with the industry still in its early stages, with about half of those assets in cash and deposits. In mainland China alone, the ultra-wealthy population with a net worth of $30mn and over is expected to grow by almost 50 per cent by 2028, according to Knight Frank research, despite the global economic slowdown.
Meanwhile, the StanChart balance sheet is in a good position to pursue growth with a common equity tier one capital ratio of 14.6 per cent, above its targeted 13-14 per cent target range. In the coming quarters, sticking to cost reduction plans will be key to keeping earnings strong: StanChart is in the midst of a fresh cost-cutting programme and is targeting to save the bank about $1.5bn over the next three years. Stringent cost controls, including slowing hiring and slashing bankers’ travel and entertainment expenses, has been a common theme for Asia’s lenders this year.
The bank’s shares rose nearly 6 per cent on Tuesday following the better than expected earnings. Still, they trade at just 0.7 times tangible book value — a significant discount to regional peers, and a third lower compared with HSBC. A record $1.5bn share buyback coupled with sustained wealth earnings growth should help narrow that gap.
