London bank Standard Chartered (SCBFF) just cannot catch a break.
Investors got an ugly glimpse on the company's earnings call with analysts Tuesday at just how much its messy loan portfolio has deteriorated, driving shares down more than 7% on London exchanges in Tuesday afternoon trading.
"Underlying loan impairments were up 87% year-over-year, excluding a $968 million impairment charge related to restructuring a portfolio that includes $7.9 billion of gross loans and $20 billion of risk-weighted assets," Jefferies analyst Joseph Dickerson wrote in a Tuesday report. "This liquidation book experienced loan impairments of $1.6 billion, or 20% of gross advances (excluding restructuring impairment charge of 12%). At the group level, nonperforming loans were $12.8 billion, up 70% year-over-year and 46% half-over-half."
But management says it can see light at the end of the tunnel. Shares have fallen 60% in U.S. markets over the past 12 months, but CEO Bill Winters said on Tuesday's earnings call that the company's investment strategy, which largely focuses on Asian markets, has come a long way in unwinding the riskiest segments of the bank's portfolio (The earnings call follows Monday's release of a $2.4 billion loss in 2015, marking its first year of negative income since 1989.)
Much of the bank's problems are tied to its deteriorating, $261 billion loan portfolio, whose value dropped more than 8% on the previous year. And many investors have grown wary of its substantial stake in economies like China and India, which lately have shown signs of cooling.
"What we're focused on now is actively managing our portfolio," CEO Bill Winters said on Tuesday's call with analysts. "So, we're not looking at wholesale portfolio shifts. We're looking at managing the pieces to continually optimize return and to continually deal with concentrations as they arise -- and ideally well before they become problematic. That's not a declaration of victory by any means, but it is an important milestone in our process of shifting from a de-risking bank to an optimizing bank."
And much of that strategy will depend on scaling back on Standard Chartered's large bull positions on both Asian economies and commodities, according to CFO Andy Halford, who said the bank has reduced its exposure to India to $30 billion from $42 billion since 2013, and in China to $50 billion from $78 billion.
"In terms of management of risk and concentration of risk in particular, we have made big progress," he said on the analyst call. "So the collective across here is about $50 billion of essential reduction of exposures to these particular areas. But not surprising, that is one of the reasons that it had an impact on the income."
Standard Chartered is not alone in its emerging market woes, as fellow British bank HSBC (HSBC) has also been hit by investor skepticism over Chinese investments, which has outweighed concerns surrounding the so-called "Brexit" referendum, according to Real Money's Antonia Oprita. HSBC shares are down 23% over the past 3 months.
"The weak results of the two banks chime with rising investor worries about the exposure of U.K. banks to Asia, and particularly China, at a time when European banks have been making investors nervous again," she said in a Tuesday report. "HSBC has been deeply involved in the liberalization and deepening of China's capital markets, having successfully negotiated a majority stake in a new, nationally licensed securities joint-venture in the mainland."