Standard Chartered shares surge on huge profit increase: City relieved that rumoured rights issue failed to materialise

SHARES in Standard Chartered Bank soared by more than 50p yesterday to their highest levels, after the bank announced a nearly threefold increase in pre-tax profits for the first six months of this year.

Bid speculation and an impressive performance in the bank's Far Eastern business quickly drove the shares higher after an initial setback. The City, which believes bad debt charges could drop sharply in the second half, was also relieved that a rumoured rights issue did not materialise.

Dealers also said a shortage of stock in the market helped to fuel the advance. The shares closed 51p higher at 949p, a climb of 6 per cent.

'It's staggering stuff. But the rally in the shares is justified . . . there are some very encouraging trends in the numbers,' said Robert Law, banking analyst with the US investment house Lehman Brothers. He predicted the share price will go over pounds 10.

The far-flung Standard Chartered made pounds 169m in profits before tax, compared with pounds 59m in the first half of 1992. The improvement was made despite a rise in bad debt charges to pounds 127m from pounds 118m, mostly related to long-standing UK corporate loans, and a pounds 43m loss in UK operations.

Profits were especially buoyant in Hong Kong and South-east Asia, where more than half of the bank's assets are employed.

The interim dividend was raised to 7.5p from 7p a year ago.

Patrick Gillam, Standard Chartered's new chairman, said that the bank had suffered too long from low earnings, slim retained profits, and only adequate capital ratios and shareholder returns.

'I am encouraged by our performance in the first half of 1993, but a large task remains, and it will take time,' he said.

The bank has strengthened management, and is focusing on core businesses, including its Far Eastern franchise, corporate and institutional banking, trade finance and treasury. It has pared staff, sold assets and aims to attack costs, which rose by 35 per cent in the six months.

The chairman said the bank was considering listing its shares on the Hong Kong and Singapore stock markets. The board decided against adjusting the dividend at the half-year stage in future.

The blot on the six months was the pounds 127m bad debt charge, about two- thirds of which related to extra provisions for old UK problem loans. Some pounds 70m went to topping up provisions on two troubled UK companies, believed to be Isosceles and Brent Walker.

But the bank said there were no significant additions to its list of problem accounts in the first six months.

Standard Chartered made pounds 204m in pre-tax profits in the dynamic Asia Pacific region. Hong Kong brought in more than half of that total, benefiting from wider margins and a buoyant new equity issues market.

The Middle East and South Asia region, which includes India, made a pounds 7.3m loss after a pounds 98m loss a year ago. The bank is reducing its balance sheet there after taking large provisions last year for its involvement in the Bombay stock exchange scandal, and wrote down its Public Sector Utility Bond portfolio by pounds 21m. It made no new provisions in India.

African businesses made a pre-tax profit of pounds 4.2m, after a pounds 13m provision for hyperinflation in the region. American operations reported pre-tax profits of pounds 10.4m following a pounds 5.8m loss a year ago.

Dealing profits, including foreign exchange, metals and bonds, more than doubled to pounds 106.5m from pounds 48.9m. The bank made an pounds 18m profit from disposing of premises in Hong Kong, and said more asset disposals could be expected. Net income increased by 48 per cent, faster than costs. Capital ratios also strengthened.

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