Standard Chartered PLC

Good morning and good afternoon, and welcome to our third quarter 2023 results call. I'll make some opening comments, and Andy will dive in deeper before the usual Q&A. We have continued to make strong progress against the five strategic actions outlined last year, delivering a solid set of results. We remain highly liquid, well capitalized, and we are confident in the delivery of our 2023 financial targets, including an ROTE of 10%. We're pleased with the progress we are making in our strategy. Our cross-border network business remains strong. Our affluent business has returned to excellent growth, both in customer numbers and income. Our digital banking strategy is working well, and our sustainable finance strategy is on track. The macro picture is more mixed. Markets remain volatile as the global economy remains resilient, leading to shifting inflation and interest rate expectations. This is particularly the case in the U.S. where we have seen significant rises in long-term rates and an increasing conviction that we will be higher for longer. Whilst we believe we are near the top of the current rate cycle, the higher for longer expectation has led to extended dollar strength, pressuring borrowers reliant on dollar funding. And we're encouraged by the recent economic data coming from China. Manufacturing and consumption are returning to normal levels. and confidence is slowly rebuilding. We continue to expect GDP growth of around 5%, reassuring given some of the narrative. That said, the commercial real estate sector has only barely stabilized, and companies are succumbing to the extended period of weak property sales. This continues to impact our results. The Chinese authorities seem keen to deflate the property bubble without materially impairing the local financial system. something that they have managed well so far, but this policy is not without risk. That, together with lower names across the banking sector in China, have led to weaker results for local banks and the resultant impairment of the carrying value of our stake in Bohai Bank. On the flip side, our business in China is thriving. The offshore business, largely cross-border transactions driven by China's actions to further open its economy and capital markets, is growing very strongly, up nearly 50% this year. The onshore business is resilient, up 2% so far, in what's been a challenging year for China's domestic economy. So despite some material setbacks, we remain very confident that we will grow profits for years to come in and around our China franchise. Our strategy is to capture the trade, investment, and wealth flows, as well as financial markets activity in and out of China, that derive from this ongoing opening of China's economy. I recently returned from China, and it's clear to me that in our focus areas, activity levels are booming. such as in cross-border flows and the new economy industries, especially those concentrated in the greater Bay Area, such as electric vehicles, clean tech, and high tech. Looking more broadly, we expect Asia GDP to be above 5% this year and next, making it the highest growth region globally. In our recent global trade report, increasing south-south or intra-emerging markets trade and growing services trade are expected to help offset the drag to trade from higher geopolitical tensions. Our unique regional footprint with presence in China, India, the Middle East, Africa, and across ASEAN allows us to capture the opportunities from shifting supply chains and growing trade and investment flows within and between our regions. Beyond the stress in China's CRE and some sovereigns, corporate and consumer balance sheets, particularly in our markets, are in good shape, often better than those of some governments, and have so far been resilient to higher rates. Now, on a more somber note, we've watched the events unfold in Israel and Gaza and Over the past weeks, we shock and sorrow. We're hoping for a speedy resolution to the situation and that the tragic loss of life is brought to an end quickly. We have very limited presence in the currently impacted part of the Middle East. The principal transmission mechanism to our business would be a broader escalation of the conflict across the region, which results in higher oil prices, which in turn would put further pressure on the global economy and particularly on oil importing sovereigns. We've made encouraging progress on our five strategic actions, and you can increasingly see that come through in the numbers. Our franchise offers superior growth prospects, and our investments are creating the platforms to ensure we capture that growth. We're convinced that we're in the right markets with the right strategy and are firmly on track to achieve our full year 2023 financial targets. With that, I'll hand over to Andy to take you through the numbers and then rejoin for the usual Q&A.

Thanks, Phil. Good morning and good afternoon, everyone. So remembering that unless I say otherwise, the comparisons I will give will be on a year-on-year and constant currency basis, let's get straight into the numbers. Third quarter income of $4.4 billion was up 7% compared with a strong third quarter in 2022, mainly due to higher interest rates. Net interest income of $2.4 billion was up 20% on strong performances in both cash management and retail deposits. The normalized net interest margin was up 24 basis points to 167 basis points after adjusting for four basis points of one-offs. Other income of $2 billion was down 5% as the continuing recovery in wealth management was offset by a lower financial markets performance relative to a very strong prior year comparator. Expenses of $2.8 billion were up 8% due to inflation, investment, and initiatives supporting business growth. But, as guided, we were in line with, in fact slightly lower than, the prior quarter's run rate. Credit impairments remained relatively low by historic standards, but were up $62 million to $294 million, mainly because of further charges relating to our China commercial real estate exposures. Overall, we generated $1.3 billion of underlying profit before tax. ROTI of 7% was depressed by a higher-than-normal effective tax rate, mainly caused by increased rates-driven losses, largely in the UK, where we have insufficient profits to shelter these losses. The effective tax rate can move around materially on a quarterly basis, so I focus on the full-year outcome, and we are taking various actions to ensure that the full-year effective tax rate will be around 30%. Now, let me cover Bohai for a moment. We took a $697 million below-the-line impairment charge relating to our BOHAI investment, the details of which we've included in the slide in the appendices. BOHAI's half-year results were published in August and showed a meaningful reduction in net interest income, which accounts for most of their total revenue. This reduction, combined with a materially lower domestic interest rate outlook, resulted in the impairment. It is important to remember that Bohai is a largely domestic China business, which is very different to our own China franchise, where we now generate more of our income outside China than within it. Moving to the year-to-date view, we are on track to meet our full-year 2023 targets. Income is up 15% year-to-date. We continue to expect full-year income growth to be in the 12% to 14% range. Costs are up 11% to date, resulting in 4% positive jaws. We remain on track for the around 4% jaws target for the full year and are willing and able to take more cost actions to protect that outcome. Credit impairment of $466 million represents an annualized cost of risk of 20 basis points within our expected 17 to 25 basis point range. we are not seeing any new areas of credit pressure emerging. Year-to-date roti of 10.4% positions as well to achieve 10% roti overall in 2023. Looking at NII and NIM in more detail, the headline here is that our NII was up 20% compared with the same quarter last year, albeit was 2% lower quarter-on-quarter. The decline from the second quarter reflects the normalized NIM being four basis points lower at 167 basis points. We believe that this quarter-on-quarter dip is temporary and does not reflect a more fundamental change in structural pricing dynamics. There are several moving parts which explain the reduction. The two basis point benefit from higher interest rates, which was net of higher pass-through rates in the quarter, was broadly offset by the impact on our hedging positions of the higher for longer rate environment. Adverse mix changes, three basis points, were driven by three things. Muted demand for client assets in a volatile rate environment. Holding a higher level of treasury balances for most of the quarter as part of managing our elevated LCR. and some further CASA to TD migration in line with our expectations. We also saw one basis point impact from asset margin compression in corporate lending. Taken together, this gets you to the third quarter normalized NIM of 167 basis points. We now think the 2023 average NIM will be approaching 170 basis points, a slight detuning from our previous language of around 170 basis points. We do not expect further NIM erosion in the fourth quarter. In fact, we see NIM expansion. and there are four primary reasons why this is the case. Firstly, we have taken a conscious decision to normalize our LCR ratio, some of which occurred in the third quarter, with more to follow in Q4. This has the effect of reducing lower returning Treasury balances. Secondly, we expect negligible rate changes in the fourth quarter, so we do not expect an incremental drag from our hedges. mortgage book. And fourthly, we see opportunities for further margin upside in Treasury from reinvestment of some balances at higher yields. These actions should more than offset any underlying movements in pass-through rates or CASA to TD migration. For 2024, we are not changing our NIM guidance. We continue to expect the average NIM to be around 175 basis points. There are a number of reasons for this. Regarding our hedge positions, we see a material and mechanical tailwind of nine basis points, eight of which come from expiry of our short-term income hedges, and one of which is due to part of our existing structural hedge maturing and being reinvested at higher yields. Furthermore, in both a more stable or lower rate environment, we expect client asset demands to increase. We expect momentum to return across trade, lending and capital markets and see ongoing growth in unsecured lending in retail, driven by our new digital platforms and partnerships. In a lower rate environment, we would also look to increase our mortgage origination. We also expect to see some mixed benefit as higher yielding client assets increase as a proportion of total assets relative to lower yielding treasury assets. These benefits will be part offset by ongoing cash-to-TV migration and higher pass-through rates. To date, deposit pass-through rates and migration have broadly performed in line with our expectations. In our top four retail markets in Asia, deposit betas have been broadly stable for much of the year, so appear to be performing better than some Western markets. All else equal, if interest rates decline, we would expect some moderation in both deposit pass-through rates and migration led initially by retail. NIM is complex to forecast. It is dependent on many moving parts and assumptions, more so for us than for others, and includes things beyond our control, such as rates curves and customer behavior. We keep it under review, and we'll update you if any of those factors or our assumptions change. As we approach the peak of the rate cycle, we're also looking to take further duration positions to dampen income volatility and mitigate the potential impact of a lower rate environment. We plan to build out our existing structural hedge position mainly through increased use of hedge accounted swaps, which are efficient from a capital and leverage perspective. This hedge build-out should also support NIM if rates fall. More on this at the full year results. Turning now to products, third quarter cash management income was up 61% and deposits were up 50% as both businesses benefited from higher interest rates. This was supported by strong discipline on pricing and pass-through rate management. Trade was down 2% on lower volumes as trade activity was subdued, particularly in China and Hong Kong, as clients preferred local currency financing. Lending was down 26%, principally due to lower origination volumes in challenging markets. Mortgage income was down 78%, reflecting market dynamics, including the prime cap in Hong Kong, which led to margin compression and, accordingly, our decision to limit new origination. CCPL income was up 2% on higher volumes, in part due to momentum in our mass retail partnerships, despite lower margins. The Treasury loss of $274 million was mainly driven by the impact of a higher rate environment on our hedge positions and a higher drag from deployment of the commercial surplus. Moving to other income. In financial markets, market volatility was lower and 2022 was a strong comparator period. As a result, income of $1.3 billion was 8% lower year-on-year, or 6% lower after adjusting for $28 million of one-off gains in 2022. Year-to-date, FM was flat, or up 7%, adjusting for $244 million of one-off gains in the prior period. Macro trading was down 11% as FX, rates, and commodities saw lower income on reduced flows in a less volatile market. Credit markets was up 4% as lower credit trading income on lower volatility was offset by stronger financing revenues from good deal execution. We also saw market share gains in G3 bond and loan markets despite declining footprint market volumes overall. FM derives about 70% of its income from ongoing client liquidity and exposure management, including the business flows into FM from transaction banking. This flow income of $910 million was up 3% on a reported basis, reflecting our past investment in digital platforms and cross-selling solutions. Conversely, the more episodic income of $343 million... which is more event and mark-to-market driven, was down 28% on a reported basis on subdued market volumes. Wealth management momentum was encouraging as the recovery here gained pace. Income of $526 million was up 18% on last year and up 7% quarter-on-quarter, our best quarter in wealth since the first quarter of 2022. Performance was broad-based, with all main wealth management product lines growing income year-on-year and quarter-on-quarter. Our seven largest wealth markets grew income at double-digit rates. Treasury products and bank assurance were up 14% and 30% respectively. Encouragingly, both managed investments and secured wealth lending also picked up. Affluent net new money more than doubled to nearly $18 billion, which is equivalent to around 9% of affluent AUM on an annualized basis. The addition of new-to-bank affluent customers continued at pace, with account openings in the third quarter at their highest level since 2021. Our success in monetizing these new affluent relationships has driven the strong performance in wealth year-to-date and is expected to underpin performance in future quarters. Turning now to the market view, most of our main markets saw good momentum, albeit with strong rates tailwinds. Singapore and Hong Kong were standouts, with year-to-date income up 31% and 25% respectively. delivering ROTI of 22% in Hong Kong and nearly 30% in Singapore. Across Asia, our income was up 18% and our underlying profits up 37% year-to-date. The performance was broad-based, with eight markets delivering record third-quarter income on a year-to-date basis and 11 of 17 markets achieving a year-to-date ROTI above 12%. In Africa and the Middle East, our income was up 30% and our operating profit up 54% year-to-date, which was particularly commendable given the number of sovereign challenges in the region. The UAE was a particular standout, with year-to-date income of $612 million up nearly 40% and a ROTI approaching 25%. Looking at China, as Bill said earlier, notwithstanding a difficult domestic environment, our China franchise continues to do very well. Our China franchise is not a proxy for China's domestic economic performance, but is instead a proxy for the ongoing opening up of China's economy. Our strategy is to capture the trade, investment, financial market, and wealth flows in and out of China that derive from this opening and China's greater participation in the global economy. On a year-to-date basis, our overall income from our China business of $2.5 billion was up 25%, comprising 2% growth inside and nearly 50% growth outside China. Our focus on the new economy is paying off, as the revenue contribution from clients in this sector is increasing at a faster rate than traditional sectors and is now approaching half of new corporate origination. Year-to-date China-related profits are up threefold, notwithstanding taking further impairment charges in connection with the CRE sector. We're therefore making good progress on our aspiration to deliver $1.4 billion of profit from China in 2024, compared with the $0.7 billion that we delivered in 2021. Turning to expenses, costs of $2.8 billion were up 8%, resulting in 1% negative jaws in the quarter. Importantly, as guided, costs came in below the second quarter run rate. We said we wouldn't necessarily deliver positive jaws in every reporting period, albeit on a year-to-date basis we have delivered around 4% positive jaws, which remains our full-year target. The main drivers of the cost increase continue to be inflation of around 4% and investments into business growth in FM, wealth, sustainable finance and China, all of which will help deliver sustainable top-line growth, reducing reliance on interest rate increases to grow income. For similar reasons, we continue to invest at pace in our digital initiatives, with strong momentum in trust and mocks, justifying our decision to invest into these businesses some time ago. Investment spend was part offset by a further $67 million of cost efficiencies, and we are now over halfway to our 2024 cost-save target of $1.3 billion. In retail, we are closing in on our 2024 $500 million cost-save aspiration, having delivered two-thirds so far. The credit impairment charge of $294 million was up $62 million, demonstrating the resilience of our portfolios, notwithstanding further pressure in China's CRE. Retail impairment of $115 million was driven by expected portfolio flows into default, and we saw an additional $30 million charge in ventures, mainly due to MOX growth. We did not expect the policy pressures in China's CRE to ease in the near term, and with investor confidence at very low levels in China, we are not expecting a swift recovery. We have proactively managed this portfolio through very difficult conditions for the sector, and our exposures have reduced by more than 30% since the end of 2021 to $2.7 billion today. We continue to take a conservative approach and mark our books accordingly. We took a $186 million charge on China's CRE, mostly through top-ups on already defaulted accounts. Within this, we increased the management overlay by $42 million to $178 million to reflect further downside risk. We are not seeing contagion from the property sector into other parts of the Chinese economy. This suggests that the idiosyncratic policy pressures in China's CRE have so far been contained by the authorities. Our China book outside CRE is performing well, and we have provided further disclosure in the materials. Turning to sovereign pressures, assuming higher rates for longer, a consequent further period of US dollar strength, and more discerning capital markets, we are not out of the woods yet, notwithstanding the commendable efforts of affected markets and the IMF to improve the situation. In part due to proactive management of our sovereign exposures, we saw a net recovery of $7 million in the third quarter, as additional provisions in Nigeria were offset by recoveries in Pakistan and Sri Lanka. Exposures in Pakistan, Ghana, and Sri Lanka have reduced by more than half, about $5 billion since the end of 2021, and we continue to actively manage our position in other vulnerable markets. High-risk assets were up half a billion dollars in the quarter. Early alerts were up $1 billion on new downgrades, including sovereigns, but this was partly offset by a $0.5 billion reduction in credit grade 12 accounts and net stage 3 loans. On an underlying basis, customer loans were up $2 billion, or 1%, to $281 billion. Higher trade loans, in part due to higher oil prices, offset small reductions in retail and wealth management. In retail, we continue to limit new origination in mortgages, which comprise about two-thirds of our total retail balance sheet due to unfavorable pricing dynamics. For the full year, we expect assets to go on an underlying basis at a low single-digit rate. Overall customer deposits were down 3% or $14 billion to $453 billion. Lower balances in cash management reflected business as usual or expected movements. The decline in financial markets and treasury is mainly due to the decision to manage our LCR down towards more usual levels. As a result, the LCR ended up at 156% down 8 percentage points in the quarter. These CCIB outflows were in part offset by an increase in retail time deposits recently. Time deposits are a high-quality source of liquidity, and in our major retail markets are particularly return-accretive when used as an anchor product for affluent relationships. Risk-weighted assets of $242 billion were down 3% or $8 billion in the quarter. optimizations in CCIB and Treasury, model benefits, the BOHA impairment, and favorable FX movements, more than offset higher market RWA, asset growth, and mixed changes, and a small amount of credit migration. Around $2 billion of further CCIB optimizations means we have nearly hit our 2024 optimization target of $22 billion. As we said at the half year, if we can do more here, we will. Looking ahead, we think RWA will be broadly stable this year, so around $245 billion at the year end. The CET1 ratio of 13.9% was down 11 basis points in the period. In the third quarter, profits and lower RWA were more than offset by distributions, including the full impact of the $1 billion share buyback announced at the half year and a larger accrual for the final dividend for 2023. The Bohai impairment was a net 18 basis point impact to CT1, as the $697 million impairment was partly offset by an RWA release of $1.7 billion. Since the half year, we have completed the $1 billion buyback announced in February and have completed around $800 million of the $1 billion buyback announced in July. Several factors could move the CDT on as we approach the year-end, including RWA inflation from credit migration and business growth and the completion of the sale of the aviation business. In the light of these factors, we will reflect on further distributions at the year-end, balancing our investment and return aspiration with the need to maintain a robust capital position. Just turning for a moment to what we are seeing since the end of the third quarter. In October, FM trading momentum improved as volatility has risen, although new deal financing and primary issuance levels are currently subdued. FM is a diverse business which can generate sustainable growth through the cycle. The trading business does better in more volatile markets, whereas the financing and capital markets businesses tend to do better in more stable markets. Trade exposures remained resilient, with further growth in working capital trade loans. In wealth management, market sentiment has become more challenging recently. However, October momentum is broadly in line with September, although do remember that we usually see some seasonality in wealth in the fourth quarter as we close out the year. Our guidance for 2023 is for the most part unchanged. we still expect 2023 income to increase in the 12% to 14% range at constant currency. We now expect a full year 2023 average NIM approaching 170 basis points. Our JAWS guidance remains around 4% for 2023, excluding the levy, at constant currency, and with the fourth quarter cost run rate expected to be similar to the second quarter. We continue to expect credit impairment to land within our 17 to 25 basis point range. We now expect an underlying effective tax rate of around 30% in 2023. We will continue to operate dynamically within the full 13 to 14% CEQ1 target range. With one quarter to go, we remain on track to deliver 10% ROTI in 2023. In conclusion, we have delivered a solid third quarter performance with strong progress on our five strategic actions. Our liquidity profile remains strong and our capital levels remain robust. As Bill said, we remain optimistic on the outlook for our markets, which we expect to continue to grow at attractive rates, notwithstanding some near-term pressures in China's CRE and some weaker sovereign markets. As we look ahead, we're confident that the investments we have made in China, wealth, financial markets, and our digital platforms will support future top-line growth in a lower-rate environment. Standing back, this is a business that has performed well through challenging markets in recent years. After 16% income growth last year, and assuming, per our guidance, 12% to 14% this year and 8% to 10% next year, We are feeling positive about the outlook as we push through the 10% ROTI level for the first time in many years and on to 11% and above thereafter. With that, I will hand back to the operator for Q&A.

Thank you both for the presentation. And as a reminder, please submit your questions via the webcast or by pressing star 1 on your telephone keypad to join the queue. We will begin by taking phone questions and your first question comes from the line of Jason Napier from UBS. Your line is open.