Standard Chartered PLC

Good morning and good afternoon, everyone, and thank you for joining our first quarter earnings call. I'll take you briefly through the numbers, and then Bill and I will be happy to take questions. In my remarks, I will be comparing year on year on an underlying basis and speaking to constant currency unless stated otherwise. And as a reminder, the results of our segments and products are now presented to reflect the R&S we issued on the 2nd of April. We had a strong start to 2024. First quarter income was up 20%. This growth rate was flattered by two notable items totaling $234 million, but even excluding these, income was up 14%. Adjusted net interest income increased 5%, and the performance of our two engines of non-NII was strong, with wealth solutions up 23% and markets up 17%. We saw good momentum in banking, with income up by a similar amount at 17%. With mid single-digit expense growth and modest loan impairments, pre-tax profit was up 27%. We remain highly liquid, our CET1 ratio remains robust, and the latest $1 billion share buyback is progressing well. We have also made good progress on our simplification agenda, We announced changes to our organizational structure, removed the regional matrix, and are mobilizing the group around fit for growth. Lastly, we are maintaining our 2024 guidance in line with what we presented at our full year 2023 results. So all in all, a very good start to the year. Turning now to look at our performance in more detail, looking at the various components of income. NII was up 5%. benefiting for just one month from the roll-off of the remaining component of the short-term hedge at the end of February and the higher NIM. Non-NII was up 37%, driven by strong performances in both wealth solutions and markets and positive momentum in banking. More on that later. Expenses were up 6%. Credit impairment remains low and predominantly relates to the WRB portfolio, with the charge in line with recent quarters. the $60 million charge in other impairment was primarily related to write-off of software assets with no impact on capital. The strong double-digit income growth, positive jobs, and low levels of impairment drove underlying profit before tax of $2.1 billion, up 27%. Other items include a $100 million provision for customers who incurred losses in Korea on their investment in equity-linked securities. This reflects our participation in a compensation scheme in line with the recommendations of the Korean Financial Supervisory Service. Taxes in the quarter reflect an underlying effective tax rate of 26%, and we continue to expect the full year 2024 underlying effective tax rate to be broadly similar to last year. We saw some underlying asset growth in the quarter, despite the higher for longer rates environment, mainly in CIB. Tangible net asset value per share was down slightly quarter on quarter with profit accretion offset by the full $1 billion share buyback impact and reserve movements such as FX and own credit adjustment. You will have seen that we now show a full TNAV walk in the appendices to the slide presentation. Adjusted net interest income was up 1% quarter on quarter to just over $2.4 billion. There were a number of factors driving this increase. The expiry of the last $12.5 billion of our short-term hedges at the end of February, reinvested at higher yields, provided a $42 million benefit for one month in March. We also saw an improvement in the liabilities mix. These benefits were partially offset by a lower margin, which reduced the net interest income by $52 million as the currency weighted interest rate across our key footprint currencies in the quarter was slightly lower and deposit pass-through rates increased. Average interest earning assets of $554 billion were down 1%, reducing NII by around $20 million. Looking forward to the remainder of the year, we continue to expect NII of $10 to $10.25 billion in 2024. There are a number of factors at play here. Firstly, the currency weighted average forward curve we have provided in slide 15 of the appendices to our presentation points to reduced headwind. In February, we showed our expected currency weighted forward market rate reduction of 51 basis points. This is now reduced to just 12 basis points based upon the curves of April 15th. Secondly, we expect to see further positive impact to NII from the mechanical benefit of the short-term hedges rolling off. This positive impact for NII will be somewhat offset, as you would expect, by reduced client asset demand in a higher for longer rates environment. Now, turning to non-NII, which was up 37%, I will cover the product performance in more detail later in the segment slides, but a few comments on the non-NII performance of our core businesses. Wealth Solutions, one of two engines of non-NII, was up 24% with broad-based growth across products. Markets, our other main engine of non-NII, was up 13%, and banking was up 48%. Excluding the two notable items of $234 million that we will address now, non-NII was up 25%. The first of these notable items was a foreign exchange revaluation gain of $158 million in our Egyptian branch. This is booked in treasury product and arose as a result of the devaluation in the Egyptian pound. This has no impact on the group's capital position, as the income is offset by a loss in the currency translation reserve. The second item arose from Ghana being designated as a hyperinflationary economy for accounting purposes in accordance with IAS 29, which resulted in a gain of $76 million. Now turning to expenses. Expenses were up 6% driven by inflation and business growth initiatives, primarily to support our higher returning businesses in CAB and our affluent proposition. The Fit for Growth program is in full mobilization phase, having launched the initiative publicly just 10 weeks ago. We're seeing good early progress as our colleagues at all levels embrace the opportunity. We have identified over 200 projects currently being scoped and put into execution, the majority of which impact multiple parts of the bank. This transversal approach will be a key characteristic of the program. And as I said earlier, we have taken action to simplify our organizational structure with the right leadership team in place to further sharpen the focus on driving strong, sustainably higher returns through each business line. We also removed the regional management construct, thereby reducing complexity and simplifying the matrix. This has led not just to a change in the way we report, but a change in how we manage the organization, leading to improved speed of decision making, increased agility, and focus on satisfying client needs. Just a reminder that the second quarter is usually seasonally higher than the first quarter, with annual staff pay adjustments being effective from the 1st of April We will manage costs tightly. And as guided in February, we are committed to keeping costs below $12 billion in 2026, implying a cost growth CAGR of 3% over the three years and targeting positive income to cost jobs in every year. Turning now to credit impairment. As a reminder, in the first quarter of last year, our credit impairment charge was just $26 million, mainly due to net releases. So while credit impairment in the first quarter of 2024 was up significantly over last year, with a charge of $176 million in the quarter, it remains relatively low. In CIB, the overall charge was net nil. China commercial real estate impairment was just $10 million net of a small overlay release. The cover level of our China commercial real estate non-performing portfolio is high at 90%. and we retain a management overlay of $129 million against further downside risk given a sustainable recovery in price and sales is yet to occur. As mentioned earlier, in WRB, the expected credit loss charge of $136 million is in line with recent quarters. In ventures, we saw a $28 million charge primarily from an increase in provisions in our digital bank, MOX. This provision, which relates to the unsecured portfolio, encouragingly appears past the peak, with flow rates to default and delinquencies improving in both the legacy and the new book. Whilst we are clearly now in a period of higher for longer rates, we are not seeing any new problems emerging other than for portfolios that were already under stress. High risk assets were down $2 billion in the quarter. As I mentioned at the full year 2023 results, the temporary increase in credit grade 12 exposure reversed as expected in the first quarter. We also saw a reduction of around $600 million in the early alerts portfolio from upgrade and repayments. Touching briefly now on the balance sheet. On an underlying basis, customer loans and advances of $283 billion were up 2% or $4 billion in the quarter, despite the higher for longer rate environment. We continued to deliberately hold back on new mortgage origination in Hong Kong due to unfavorable pricing dynamics, and in Korea, mortgage demand is weak. As we've said before, we expect to see mortgage growth only later in our three-year plan period. Whilst client demand for borrowing in a high interest rate environment remains muted, encouragingly, we saw some growth in CIB trade and working capital, markets, and banking. driven by client activity. We continue to expect asset growth to mostly come through later in 2024, with no change to our guidance of low single digit percentage growth for the year. Customer deposits were down $6 billion in the quarter, excluding the impact of FX to $459 billion. We continue to attract deposits in WRB, which increased by $3 billion. This was more than offset by a reduction in CIB CASA from month-end client activity. Post-quarter end, we have seen these flows substantially return. The liquidity coverage ratio was broadly stable at 146%. Turning to capital, risk-weighted assets of $252 billion were up 3% or $8 billion on the end of 2023. Operational risk RWA, which is mechanically calculated from the previous three years' income, contributed to $2 billion of the increase in the quarter. This is a one-off increase for the full year. Higher RWA from changes in asset mix was offset by NFX benefit from a strengthening US dollar. Lastly, market risk RWA grew by $4 billion. Clients re-engaged post the seasonally quiet end to the calendar year. Although volatility was not widespread in the quarter, we saw pockets of opportunities to help clients, particularly in Greater China and Africa, and it generated an attractive return on risk-weighted assets deployed. Market risk RWA from these client opportunities is expected to reduce in the second quarter, and we continue to guide to low single-digit percentage growth in overall RWA for full year 2024. The CET1 story is simple. The deduction of the full $1 billion share buyback took the pro forma CET1 ratio down 40 basis points to 13.6%. After accounting for this, our first quarter CET1 ratio was broadly stable, with equity generation from first quarter profits offset by the increase in RWA. Let's look briefly at our large client segments, turning first to CIB. Market's income, up 17%, was led by strong double digit growth in macro trading and credit trading. Flow income was up 5%. Episodic income came back after a slow quarter last year, up 30%, as we helped clients to capture volatility in some of our key geographies. When we issued the RNS in April, we introduced a new product taxonomy, which included splitting financial markets into markets and banking, to give you a better window into products with similar income and balance sheet attributes. Banking was up 17% as a result of higher client origination and execution of a good pipeline. We continue to increase the velocity of our balance sheet by originating to distribute. Trade continues to lag. Global trade volumes are down, but we are maintaining overall market share across products and geographies. WRB also had a very strong quarter. Wealth Solutions' income grew 23% with broad-based growth across products. Our less market-sensitive income grew at a healthy clip as we began to monetize the quarter of a million new-to-bank, high-quality affluent clients that we onboarded last year. The leading indicators continued to be robust, with sustained momentum in affluent new-to-bank clients, particularly in Hong Kong, Singapore, and China. Of the net new money flows of $11 billion in the first quarter of the year, $7 billion, or around 70%, were deployed into wealth products, and the balance was from deposits. The mixed shift we have seen developing towards wealth products accelerated this quarter, even though interest rates generally remain elevated. We're continuing to invest in the wealth solutions franchise and are adding new relationship managers in key markets, including Hong Kong, Singapore, UAE, and China. So to summarize, we have had a strong start to the year. Net interest income increased, wealth solutions and markets have started the year strongly, and the positive momentum in our banking business is helping non-NII. Our loan impairment charge remains low. We have seen growth in RWA from client opportunities that arose in the first quarter, which in part helps drive markets income, but we continue to expect low single digit growth for the full year. our capital position and expectations of RWA growth are entirely consistent with our goal of returning capital to our shareholders. April has seen a good start to the quarter, albeit not as strong as the first, consistent with normal seasonality as our first quarter always benefits from heightened client activity. More importantly, it is consistent with our group targets for full year 2024. Finally, to bring it all together, As I mentioned earlier, we are maintaining all our forward guidance with the one clarification that our income guidance for this year to deliver growth around the top of the 5% to 7% range and positive jobs is excluding the impact of the two notable items of the first quarter. With that, I'll hand back to the operator and Bill and I will be happy to take questions.

Thank you, dear participants. As a reminder, if you wish to ask a question over the phone, please press star 11 on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star 11 again. Alternatively, you can submit your questions via the webcast. Please stand by, we'll compile the Q&A roster. This will take a few moments.

And now we're going to take our first question.