Market Report: StanChart to post “meaningful loss” in 2016, warns UBS
Shares in Standard Chartered dropped after UBS said it expects the investment bank to post “a meaningful loss” this year.
UBS slashed the FTSE 100 bank’s rating from “neutral” to “sell” as it questioned StanChart’s ability to recover in 2017. After tanking by 38pc last year, the stock has surged by more than 40pc from February lows.
The rally comes against a backdrop of a significant fall in consensus earnings expectations. Profits estimates have fallen for 2016 and 2017 falling by 60pc and 30pc, respectively.
Although Jason Napier, of UBS, sees “great business” with StanChart, particularly in its transaction banking and financial markets divisions, he thinks the headwinds of deleveraging and low yield curves will combine with elevated loan losses, making life in the near-term “particularly difficult”.
Ahead of its first-quarter results on April 26, Mr Napier thinks the stock will have “more shorts than ardent admirers”. In the fourth quarter, its performance was ”so weak” income fell 27pc year-on-year.
However, there is a glimmer of hope for StanChart, UBS believes its first quarter profits will benefit from lower restructuring charges.
The bearish tone and rating downgrade prompted shares in the bank to fall 2.7p, or 0.5pc, to 556.3p.
Meanwhile, its peers made gains, with the Royal Bank of Scotland trading 1.6pc higher at 253.6p and HSBC Holdings advanced 1.4pc to 471.9p. Despite plans to axe around 635 jobs, Lloyds Bank also added 1.4pc to 68.7p.
In its wake, the FTSE 100 fell 28.82 points, or 0.45pc, to 6,381.44.
Despite charging to fresh 2016 highs earlier in the week, Chris Beauchamp, of IG, said: “Indices still look bereft of any real reason to keep rallying.”
Meanwhile, oil prices enjoyed another wild rollercoaster ride, soaring above the $46 mark before tanking by as much as 2.5pc to $44.65 a barrel after the dollar rebounded. Nevertheless, Royal Dutch Shell B shares and BP enjoyed gains of 1.3pc and 1.4pc, respectively.