By Lawrence White and Selena Li
LONDON/HONG KONG (Reuters) -StanChart shares fell 12% in London on Thursday before trading was briefly halted, after it announced its profit unexpectedly plunged by a third due to a nearly $1 billion combined hit from its exposure to China's real estate and banking sectors.
The bank said pre-tax profit dropped 33% in the third quarter, far worse than analyst estimates, as it booked a $700 million impairment from its stake in China Bohai Bank, and a $186 million charge from Chinese commercial real estate.
By 0919 GMT, Standard Chartered (OTC:SCBFF) shares were down 10.5%, set for their largest one-day fall since March last year, when Russia invaded Ukraine.
The U.K.-headquartered bank, which earns most of its revenue in Asia, booked July-September statutory pretax profit of $633 million. That compared with $996 million a year earlier and the $1.41 billion average of analyst estimates.
The hefty loss in China, where StanChart has based much of its expansion effort, underlines the challenge it faces to improve returns via exposure to the world's second-largest economy at a time of slowing growth and widening losses on loans.
StanChart said the hit on its 16% stake in China Bohai, a lender in the eastern coastal city of Tianjin in which it invested more than a decade ago, was due to lower forecast interest rates and decreased lending margins.
Bohai booked a 17.8% fall in January-June net interest income, leading to a nearly 7% decline in its overall profit, according to company filings.
"We took a couple of impairment charges a year and a bit ago, and we have taken the extra impairment charge as you can see today," Chief Financial Officer Andy Halford told reporters.
"That is reflective of the fact that particularly its own net interest margin has been weaker," he said.
A raft of government easing measures has done little to allay China's economic fragility as a crisis in its property market deepens with high-profile debt-repayment defaults.
StanChart's Chinese real estate exposure totalled $2.7 billion as of the end of September, down $200 million from the previous quarter.
Shares in rival HSBC, which similarly has exposure to Chinese real estate and to the bank sector via its stake in Bank of Communications, were down only 2% on Thursday as investors saw limited read-across between the two.
StanChart, which has been the subject of repeated takeover speculation in the last decade, saw renewed interest earlier this year after First Abu Dhabi Bank (FAB) in January said it had considered but abandoned a bid.
StanChart has recently had "no contact" with FAB, Chief Financial Officer Andy Halford told reporters on a conference call on Thursday.
'SOLID PERFORMANCE' IN OTHER BUSINESS
StanChart said it is confident of hitting its return-on-tangible-equity targets of 10% this year and 11% in 2024, but downgraded some other performance forecasts for the year.
"Investors were expecting a clean set of third quarter numbers, and we do not have that today," said Jefferies analyst Joe Dickerson.
The "silver lining" for investors was the bank's underlying business performance - excluding impairment charges - remained solid, Dickerson said in a note to clients.
Net interest margin, a measure of return on lending, will now "approach" 1.7 percentage points rather than be "around" that level, StanChart said.
Rate-sensitive businesses received a boost, with income from transaction banking - the bulk in cash management services - increasing 42% and retail products reporting 17% growth.
In the financial markets trading division, income fell 8% as reduced market volatility curbed client appetite for trading.