STAN Standard Chartered Plc

By Paul J. Davies 

Many a fortune has been won and lost on oil and other stuff dug out of the ground.

Standard Chartered is more dependent than most banks on lending money to those who dig up commodities or move them around: that is why its shares track the oil price closely and why commodities drove the fears around its bad debts.

A recovery in commodities prices would mean a rebound in revenues in a significant chunk of Standard Charter's business. But it wouldn't cure all the bank's top-line ills.

The bank's corporate and institutional division, which contains most of the commodities exposure, saw the biggest falls in revenues versus the first quarter last year. They were down 27%, or $670 million, which includes not only trade finance, but also financial markets and corporate finance.

Partly this is down to restructuring, shedding bad assets and cutting back its risk appetite. But it is also down to cheaper commodities. Much of the bank's commodities lending is trade finance with short maturities, so if it stops making new loans, its book shrinks quite quickly. That helped cut its commodities exposure from $55 billion at the end of 2014 to $37 billion today.

However, any new commodities financing it has done is against lower priced material, which means smaller loans and lower revenues. Andy Halford, chief finance officer, said perhaps one-third of the shrinkage in commodities-related revenues was down to lower prices, with some more related to reduced market activity.

Assuming its risk appetite stays the same from here, there is a decent chunk of revenues that can rebound if, for example, oil or iron ore prices recover. This looks good for Standard Chartered, which has less exposure than some larger European rivals to the hard-to-shed fixed-income and derivatives businesses that no longer work under new capital rules. When a turnaround in its wholesale bank comes, it could be quite quick.

But other things still hold it back. Its first-quarter profits beat expectations due to lower bad loan losses, but the bank still added more bad loans in the period and for Bill Winters, chief executive, it was too early to say asset quality had turned a corner.

There have also been permanent revenue losses elsewhere. Retail revenues, which account for about one-third of the total, were down by 20% year on year and about half of that is gone for good because the bank quit businesses. The smaller commercial clients business saw a 36% drop in revenues and much of that comes from the bank getting out of risks it no longer likes.

Standard Chartered is still shrinking and it will until there is a rebound in commodities and Asian growth. As it grinds through its restructuring this year, it will also need to show where the bank's own rebound could come from.

Write to Paul J. Davies at paul.davies@wsj.com

(END) Dow Jones Newswires

April 26, 2016 08:10 ET (12:10 GMT)

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