Standard Chartered reports drop in financial markets income in Q1 2021
Standard Chartered PLC (LON:STAN) today reported its financial results for the first quarter of 2021, with overall performance solid but the Financial Markets segment registering a drop in income.
Positive business momentum, very low credit impairment charges and operating cost efficiencies more than offset the impact of lower interest rates, a $305 million reduction in the debit valuation adjustment (DVA) and increased investment. Income declined 3% excluding DVA and on a constant currency basis, with a record performance in Wealth Management as well as 4% growth in Loans and Advances to Customers in the quarter nearly offsetting the impact of a 30 basis point decline in net interest margin.
The Group remains well capitalised and highly liquid with a CET1 ratio of 14.0 per cent – at the top end of the 13 to 14 per cent target range – an advances-to-deposits ratio of 62.7 per cent and a liquidity coverage ratio of 150 per cent.
Operating income declined 9% from the year-ago quarter and was down 3% on a constant currency basis and excluding a $305 million reduction in DVA. The impact of lower interest rates was partially offset by balance sheet growth and strong performances in Wealth Management and Financial Markets, excluding the reduction in DVA.
Underlying profit before tax up 18% to $1.4 billion, with lower impairments and business momentum more than offsetting the impact of lower NIM. Statutory profit before tax was up 59% to $1.4 billion.
Reflecting the updated organisational structure that came into effect on 1 January 2021, the Group’s Financial Markets business has been expanded and reorganised, with the Group integrating the majority of its Corporate Finance business within Financial Markets. The remaining elements of the Group’s Corporate Finance business – primarily M&A Advisory – have been transferred into Lending & Portfolio Management.
In the first quarter of 2021, Financial Markets income declined 14% to $1.32 billion. The result, however, was up 7% from a year earlier excluding the reduction in DVA. Credit Trading was up strongly compared to a $25 million loss in 1Q’20 which was due to mark-to-market movements resulting from the elevated levels of market volatility at that time.
There was high single-digit growth in Structured Finance and Financing Solutions & Issuance, while positive movements in XVA resulted in a doubling of Financing & Security Services income.
Macro Trading declined 19% from lower FX and Rates income due to reduced client demand and lower trading gains compared to the exceptional volatility experienced in 1Q’20. This was partly offset by strong double-digit growth in Commodities which benefited from higher commodity prices.