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StanChart warns of trade war risks after Q3 profit beats expectations

Hong Kong

STANDARD Chartered (StanChart) warned on Wednesday an escalating Sino-US trade war was weighing on business sentiment in its core emerging markets, after posting a better-than-expected 31 per cent rise in quarterly profit before tax.

The downbeat comments on global trade reflect a more pessimistic tone than the Asia-focused lender's statement in July where CEO Bill Winters said he saw a "minimal" hit to the bank's performance from the US-China spat.

The British lender is particularly sensitive to trade tensions, since it has during its 150-year history focused on financing trade between Asia, Africa and other parts of the world. Greater China and the rest of North Asia account for 40 per cent of its operating income.

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"Escalating trade tension and other macroeconomic factors are affecting sentiment in emerging markets," StanChart said in its earnings statement, in one of the grimmest predictions on the issue so far by a global bank.

The world's top two economies are already waging a tariff war over their trade disputes, with US duties in place on US$250 billion worth of Chinese goods and Chinese duties on US$110 billion of US goods.

StanChart posted a profit before tax of US$1.1 billion in the three months ended Sept 30, above the US$814 million profit in the same period a year ago and higher than the US$978 million average of analysts' forecasts.

StanChart said the trade tensions particularly impacted its wealth management business, as falling stock prices as a result of the economic uncertainty made retail customers more reluctant to invest.

Wealth management income in the quarter dropped 4.7 per cent from a year-ago period to US$465 million.

StanChart's results come after bigger British rival HSBC earlier this week posted a surprise 28 per cent rise in third-quarter earnings as it tightened its grip on costs. HSBC had said the impact of the trade spat was "not yet manifesting itself in business activities in a meaningful way".

StanChart reported operating expenses of US$2.51 billion for Q3, roughly in-line with analysts' average forecast of US$2.55 billion, but 1.2 per cent higher than the year-earlier period, it said in the earnings statement. The bank's total operating income during the quarter rose 3.8 per cent from the year-ago period, but fell 1.4 per cent from the preceding three months.

StanChart said that income growth was impacted by sluggish business in Africa and the Middle East. "Macroeconomic and geopolitical headwinds" continued to impact performance in the quarter particularly in the United Arab Emirates, the bank noted.

"But growth fundamentals remain solid across our markets and we are cautiously optimistic on global economic growth," CEO Winters added.

StanChart has struggled in recent years to grow income, after Mr Winters in 2015 embarked on a sweeping restructuring aimed at weeding out a persistent bad loan problem and improving senior bankers' accountability. The bank has since poured money into its retail banking business and wealth management technology platform, but has yet to see that translate into significant increases in profit.

StanChart said in the statement that it would set out a refreshed strategy when it reports full-year results in February, as it seeks to further improve returns. REUTERS