Standard Chartered PLC

Good day and welcome to the standard charted first quarter 23 results presentation. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question by phone, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero. Alternatively, if you wish to ask a question via the webcast, please use the question box available on your webcast page to submit your questions. I would also like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Bill Winters, Chief Executive, to begin the conference. Bill, over to you.

Good morning and good afternoon. Thanks for joining our first quarter results call today. I'll make some opening remarks and Andy will talk to the numbers before we do the usual Q&A. Our first quarter results are strong, despite the challenging external environment. Income was up 13% to $4.4 billion, and underlying profit before tax improved 25% to $1.7 billion. This is our highest first quarter profit since 2014. Our return on tangible equity was up 170 basis points to 11.9%. We've also made really good, strong progress on each of our strategic initiatives. growing our network business, our affluent client segment, and sustainable finance income, while accelerating the growth of our mass market retail business. This has led to growth in non-interest rate sensitive financial markets and wealth businesses from the dip we experienced through the middle of last year, allowing us to fully capitalize on our interest rate exposures while positioning us for strong growth for the remainder of the year and beyond. We had a particularly strong quarter in our financial markets business, approximately matching our record performance from last year's first quarter, We've capitalized on investments we've been making to broaden our capabilities and serve clients with the broadest range of risk management and financing options across our markets. As Andy will describe in more detail, we think this bodes well for ongoing growth in that business line. During March, I was in Bahrain, Singapore, China, and Hong Kong, and a key takeaway from this trip is that activity in Asia and the Middle East remains robust, despite the recent banking sector concerns in the U.S. and Europe. The recent reopening of China is pushing activity levels higher, and this is continuing to show in our numbers, with China offshore income up 67% so far this year. The leading indicators of China reopening, such as new client acquisition, support our optimism for performance over the rest of the year. We expect the China recovery to continue, which should help offset the impact of Western slowdown on Asian economies should that occur. We have not seen any material impact on the Asian financial system from events in the West, nor do we expect to do so. The recent banking sector turmoil feels different to the global financial crisis. Post-GFC regulation means banks are carrying much higher capital and liquidity levels. The bank failures we saw suggest this was a crisis of confidence in a few institutions, not a broader solvency issue. Regulators acted swiftly and decisively in providing liquidity support where needed, and this appears to have prevented broader contagion. Going forward, we believe central bank objectives will be best met through more consistent regulation across banks and between banks and non-banks, as well as by providing further clarity to the market on the availability of central bank funding to address liquidity challenges in otherwise solvent banks. Now, we see no indication that our business model is challenged, nor are there any gaps in the way that we're regulated or in our access to central bank funding should we ever need it. Our balance sheet and liquidity profile is very robust and We've provided more disclosure on those topics, which Andy will cover in some detail. We've navigated the market turbulence well, but we're not complacent, and we're watching closely for any signs of further pressure that may emerge. Following the strong first quarter performance, positive momentum, and encouraging leading indicators across our businesses and markets, we're firming up our guidance on income growth to be around 10% for this year, the top end of our 8% to 10% range previously mentioned. We think we'll accomplish this as we expect higher other income due to increased confidence in the outlook despite lowering the NIM guidance by five basis points to around 170 basis points in 2023. This revised NIM outlook comes in part as we have deliberately chosen to run with strong liquidity positions to these challenging times. So to summarize, we're delivering on our strategy and commitments. We're optimistic on the outlook for our footprint markets. We're mindful of the external macro headwinds and recent challenges in the banking sector, but our balance sheet is robust, and we remain confident in the ability of our franchise to deliver our ROTE targets. So with that, I will hand over to Andy, and we will both be back at the end for some Q&A.

Thank you, Bill. Good morning and good afternoon to everybody joining today. Before going through the numbers, I wanted to reinforce Bill's comments. Having spent time recently with the board and with our management team in Asia, whilst there remain broader challenges in the global economy, our footprint markets feel to be in a different place to the West. We continue to expect higher levels of GDP growth in Asia versus the West in both 2023 and 2024. Footprint activity levels are picking up, in part due to the recent recovery in China. We also expect business sentiment and activity in our footprint to be less impacted by the fallout from recent banking sector challenges seen in the West. Before I get into numbers, can I remind you that we recently published the re-presentation of our financials, reflecting the move of the Africa and Middle East exit markets, the aviation finance business, and DVA movements into restructuring and other items. Comparisons in my remarks are, unless otherwise stated, to the represented financials and on a constant currency basis. So, to the numbers on slide six. As Bill has already mentioned, income of $4.4 billion was up 13% ahead of our 8% to 10% guidance range, representing the group's best first quarter income performance since 2015. On a statutory basis, net interest income was up 18% year-on-year to $2 billion as the liability-led businesses of TB Cash and Retail Deposits benefited from rising rates. Other income was up 9% to $2.4 billion. Expenses of $2.7 billion were up 10% reflecting the impact of inflation and staff cost increases supporting business initiatives. Income-to-cost jaws were 3% positive in the first quarter, and we remain confident in our ability to deliver 3% positive jaws in 2023. Loan impairments of $26 million were significantly lower year-on-year. In the associates line, the profit from Bohai was down, but this was already anticipated in the impairment charge we took in relation to Bohai at the end of 2022. Together, these movements generated an underlying profit before tax of $1.7 billion, up 25%, our best quarterly profit performance since 2014. We therefore delivered an underlying return on tangible equity of 11.9%. The balance sheet is strong, liquid, and well diversified. CT1 at 13.7% is towards the top end of the 13% to 14% target range after the full impact of the $1 billion buyback announced at the full year 22 results. Our liquidity coverage ratio is up 14 percentage points in the quarter to 161%, the highest level we have reported. Looking at income in more detail on slide 7, as I mentioned earlier, total income grew at 13% in the quarter. In transaction banking, cash continued to benefit from higher rates supported by pricing discipline and pass-through rate management, with income almost tripling year-on-year. Trade, on the other hand, was down 3%, impacted by lower global trade flows, challenging credit conditions in major markets, and margin compression. In retail, deposit income more than tripled year-on-year, supported by rising rates and well-managed pass-through rates. Mortgage income was down 52% as market dynamics, including the prime cap in Hong Kong, led to margin compression and lower volumes. CCPL income was up 2% on higher credit card balances and fee income. Negative income in Treasury reflected the $298 million loss on our structural and short-term hedging positions in a higher rate environment, as well as higher external funding costs and lower realisation opportunities given higher market yields. Lending and portfolio management was broadly flat, as higher fee income was partly offset by lower volumes and a higher cost of funds on undrawn commitments. Lastly, through the country lens, we saw some strong performances, with Hong Kong and Singapore, our two largest markets, being particular standouts, with income growing 33% and 40% respectively. I'll talk more about the opportunities we see in financial markets and wealth management later. Now, looking at net interest income in more detail on slide eight. First, quarter net interest income after adjusting out the trading book funding costs was $2.3 billion, up 36% year on year, as the average adjusted net interest margin increased 34 basis points to 163 basis points. Quarter on quarter, the net interest margin was up five basis points. as a 14 basis point benefit from higher rates was offset by a three basis point impact from net hedging positions, three basis points from CASA to TD migration, and three basis points from higher treasury balances. The negative impact on net interest margin from our hedging positions was reduced by the roll-off of 60% of our short-term hedges in the quarter, the remainder of which rolls off by February 2024, which will be a further benefit to NIMH. The cost of funding the trading book in the first quarter increased to $352 million, primarily reflecting increased cost of funds, and we now expect the trading book funding adjustment in 2023 to be around $1.7 billion. This increase has no impact on adjusted NII, but enables us to continue to invest into our high-returning financial markets business. We are broadly comfortable with the current implied adjusted NII consensus. We have reduced our NIM outlook by five basis points to around 170 basis points in 2023, and then expanding in 2024 to around 175 basis points. This NIM change reflects both updated forecasts and our decision to deliberately operate with higher liquidity levels at this time. Looking at financial markets in more detail on slide nine. Financial markets made a good start, finishing the quarter strongly on higher trading gains and widening spreads as volatility rose in March. FM income on a headline basis was lower by 5%, but adjusting for the one-off gains on market liabilities of $94 million in the first quarter of 2022, the underlying performance was up 1% compared with a record quarter for FM last year. The recent stress in the banking sector demonstrates that uncertainty and volatility have not gone away. This is expected to support FM flows and performance going forward, increasing our confidence in the overall outlook. This market uncertainty drove client flows and wider spreads with strong double-digit year-on-year growth rates in rates and credit trading against a strong comparator period. Around 70 percent of FM income came from more stable flow income generated by client liquidity and exposure management, including the business flows into FM from transaction banking. Flow income, which is more sustainable relative to episodic income, was up 15 percent year-on-year, which will support FM's performance in 2023. Now, focusing on wealth management on slide 10, Income of $511 million was flat year on year against a strong prior year comparator and is recovering well from a slow second half of last year. Treasury products had a strong start offset by lower managed investment and wealth lending as equity markets remain challenging. Bank assurance was broadly flat against a strong prior period. The post-pandemic reopening in North Asia has laid the foundations for an ongoing recovery in wealth management over the coming quarters. In Hong Kong and China, we saw double-digit growth in bank assurance and treasury products, with overall wealth income up in both markets year on year. We are seeing strong traction in leading indicators, such as client onboarding. with new to bank affluent clients up fourfold in Hong Kong and doubling in China relative to the first quarter of 2022. Having onboarded new clients, we will focus on monetizing these relationships going forwards. We are well positioned as a top four wealth manager in Asia. The post-pandemic reopening in our markets is supported and the longer term structural drivers of Asia wealth remain compelling. This gives us confidence that our wealth management business will continue to grow going forward. Now, turning to expenses on slide 11, costs were up 10%, resulting in 3% positive jaws in the quarter, in line with our full-year guidance. The cost-to-income ratio improved two percentage points to 61%. Inflation of 5% and higher staff costs in support of business initiatives increased particularly in China, FM and retail, were the main drivers of the cost line. We continued to invest in the business, with investment spend up $72 million and a further $27 million going into ventures, supporting portfolio growth and Trust Bank in particular. Investment spend was broadly offset by $128 million of cost savings. To date, we have delivered $0.6 billion of our $1.3 billion cost efficiency program. We are committed to managing costs tightly to ensure that we meet our full year JAWS guidance of 3% in both 2023 and 2024. We expect JAWS to widen if income outperforms current guidance. Moving to credits on slide 12, impairment of $26 million was down 172 million year on year, reflecting our disciplined and proactive approach to risk management in a challenging macro environment and volatile markets. In retail, the $62 million charge was net of a COVID overlay release of 12 million. In the sovereign portfolio, there's a net release of 23 million. We continue to monitor sovereign risk closely in several markets, and are taking assertive management actions to reduce our exposure should further defaults occur. Consequently, we think the impact of a Pakistan default on CP1 would not be material. On China commercial real estate, whilst we have seen favorable policy measures in support of sectoral liquidity, some risks remain until buyer confidence returns more fully and sales materially pick up. In terms of forward-looking indicators, high-risk assets were broadly stable in the quarter. Early alerts were up $0.4 billion, reflecting new inflows relating to a select number of clients, while CG12 accounts and Net Stage 3 together reduced by a similar amount. Switching to the balance sheet, a topic of significant market interest in recent weeks. Firstly, on slide 13. Underlying customer loans were down 1% quarter on quarter, reflecting lower mortgage balances, as market conditions meant writing new business was economically unattractive. Now to the topic of the moment, deposits. Our customer deposit base was stable throughout the quarter, with no unusual trends observed in recent weeks. In the first quarter, we saw $3 billion of retail inflows and $1 billion in financial markets. offset by $4 billion of business-as-usual month-end outflows in transaction banking, the majority of which returned shortly after the period end. Given the market focus on deposits and liquidity risk management, we have provided some additional disclosure in the materials. Our deposits are well diversified by market, segment, and industry, and we have not seen any impact from the recent issues in the banking sector. As you can see on slide 14, no single market contributes more than 30% of our deposits. We have grown deposits as a stable CAGR of around 5% since 2008 through both market and idiosyncratic stresses. As most of our deposits are in Asia, Africa, and the Middle East, we did not expect nor did we see significant deposit movements in our markets as a result of recent banking sector challenges. Our global transaction banking franchise provides access to both U.S. dollar liquidity, given the U.S. dollar remains the main currency of global trade, and high-quality and sticky corporate operating account balances. Operating accounts are nearly half of all CCIB deposits and around 65% of our transaction banking and security services customer balances. In terms of deposit insurance, Schemes in our main retail markets are simply less generous relative to those in the West, where we do not have a significant presence in retail, SME, or local corporates. Our weighted average deposit insurance in footprint markets is one-fifth of that in the US and half that in the UK. Turning to slide 15, our deposit migration and beta outcomes remain in line with our expectations and within our prior guidance. The increases in deposit betas and CASA to time deposit migration over recent quarters simply reflect the ongoing rate hiking cycle. Whilst we have seen migration from CASA to TDs, we have broadly maintained overall deposit levels in recent quarters. It's worth remembering that time deposits remain good quality liquidity, despite being generally more expensive than CASA. Further disclosures on the balance sheet are in the presentation materials. It is also worth noting that most of our assets are a short duration, which provides a high degree of flexibility, if needed, to navigate periods of dislocation or stress. Finally, on to capital and RWA on slide 16. Risk-weighted assets were up $6 billion, or 3% in the quarter, to $251 billion. Asset growth and mixed changes contributed around $4 billion of risk-weighted asset growth, mainly in Treasury and F&M. Credit migration of $1.8 billion was mainly due to further sovereign downgrades. There were $1.8 billion of efficiencies delivered in the first quarter, half of which were in the CCIB. Market risk-weighted assets were up $1.7 billion, reflecting increased positions in the rates and credit businesses. The C2-1 ratio of 13.7% declined 25 basis points in the period as first quarter profits were more than offset by the 1 billion share buyback programme announced at our full year results, other distributions including the interim dividend accrual and RWA growth. The recent rally in rates in the first quarter also led to a reversal of some prior FBOCI losses in our Treasury portfolio as bond prices increased as yields fell. Our $1 billion share buyback is progressing well. Including this, we have announced total capital returns of $2.8 billion since full year 2021 against our full year 2024 target of more than $5 billion. So, in summary, and looking ahead on slide 17, the group delivered a strong performance in the first quarter. Our footprint markets are expected to outperform the West in terms of growth and activity levels. Our diverse franchise is underpinned by a robust balance sheet, which is well capitalized, highly liquid, and well positioned to navigate ongoing challenges in the global economy and the financial sector. Income is now expected to grow at around 10% in 2023, with the slightly lower rate of increase in our NIM being more than offset by the momentum in wealth management the progressive benefits of China reopening, and increased confidence in the FM business, reflecting the strength of client-driven flow revenues. We expect 2024 income to grow in the 8% to 10% range and the NIM to be around 175 basis points. We expect to deliver 3% positive income to cost fuels in 2023 and 2024. The estimated impact of FX is presently a $200 million headwind to income and a $100 million expense tailwind. Our loan loss rate will continue to normalize towards our historic through the cycle 30 to 35 basis point range. We'll continue to operate dynamically within our 13 to 14% CT1 target range. Putting all of this together, we are confident in our ROTI approaching 10% this year exceeding 11% next year and with further growth thereafter. So with that, I will hand back to the operator for Q&A.