The private banking arm of Standard Chartered, the bank that earns the bulk of its revenue in regions such as Asia, will become a bigger driver of results for its parent group, its CEO says.

The private banking arm of Standard Chartered, the UK-listed bank that earns the bulk of its revenue in regions such as Asia, will become a bigger driver of results for its parent group, performance of which has been “disappointing”, it said today.

StanChart’s private banking arm announced a total operating profit of $71 million in the six months to 30 June, down from $81 million a year earlier. Operating expenses in the period were $227 million, up from $213 a year earlier. Income from private banking clients primarily relates to wealth management and retail products, including lending, generated from clients across Asia, Africa and the Middle East.

Commenting on this segment, Peter Sands, chief executive, said: “Our commercial clients are largely family-owned businesses, and the families are a perfect fit for private banking. However, many, perhaps most, are not aware that it exists. So we are making introductions, doing joint meetings, showing clients how we can support them. To put this in context, we believe the private banking wallet of our existing commercial client base is about four times the size of our current private banking business.”

“While relatively small in the scheme of the group as a whole, private banking will become an increasingly important source of growth. With assets under management up 13 per cent year-on-year, net new money up 15 per cent, and income up 4 per cent, despite exiting subscale presences in Miami, Geneva, and Korea, private banking has good momentum,” he said.

Operating income from private banking clients increased by $13 million, or 4 per cent, to $314 million. Excluding income from Korea, a market from which this segment existed in the second half of last year, income rose 8 per cent. This reflected strong growth across the Hong Kong and the advising centres, led by wealth management, lending and mortgage products and “good traction” in sales of structured notes, equities and funds leveraging on improved market sentiment, it said. These effects were partly offset by lower income from deposits due to margin compression.

Client assets under management (AuM) grew 13 per cent compared to H1 2013, now standing at $61 billion, driven by higher investment balances.

Group performance
Operating income for the whole of StanChart dropped 5 per cent year-on-year to $9.269 billion. Pre-tax profit fell 20 per cent to $3.268 billion down.

Statutory profit attributable to ordinary shareholders was $2.310 billion, up 8 per cent year-on-year.

Peter Sands, whose own tenure as chief executive has been speculated upon since the bank flagged up a difficult period of results recently, said the results were “disappointing” but pointed to a number of structural changes the bank had made.

“Our performance in the first half of 2014 is clearly disappointing. It is not what we strive for and not what our investors expect. In March, we made clear that this first half would be tough, and we were even more specific in our pre-close trading statement in June,” Sands said.

“The reasons for our weaker performance should be equally clear: continued financial markets weakness, challenges in Korea as we reshape our business there, and an uptick in impairment, largely due to a commodity fraud exposure in China and write-offs relating to pre-crisis strategic investments.  Evolving regulatory requirements continue to add upward pressure - and uncertainty - to costs, while structurally impacting the income and return profile of some products,” Sands said.

We are taking action to get us back on the track of sustainable, profitable growth, because that is how we have driven value creation for our shareholders in the past, and how we will do so in future. It is worth noting that, despite the disappointing first half of 2014, we delivered more profit for our shareholders during these six months than we did in the whole of 2006 at the peak of the pre-crisis banking boom. Not many banks can make that claim,” he said.

“We have refreshed and sharpened our strategy, and are executing it at pace. Over the past six months, we have completely reorganised the group to make us fitter, more flexible and better aligned to our strategic aspirations. We have shifted our resource allocation, disposing of several non-strategic businesses, managing costs and capital deployment very tightly, and stepping up investment in priority areas. We have reset our client segment strategies, revised our product priorities and rethought the way we are approaching critical infrastructure and platform decisions,” Sands said.