Standard Chartered gloomy over Hong Kong

Standard Chartered predicted that consumer banking revenues in its key Hong Kong and Singapore markets would be flat this year and cost growth would outstrip revenues, sending its shares lower yesterday.

Standard Chartered predicted that consumer banking revenues in its key Hong Kong and Singapore markets would be flat this year and cost growth would outstrip revenues, sending its shares lower yesterday.

The comments were compounded by news that the bank would not challenge its rival HSBC in a bidding race for Korea First Bank.

It overshadowed the bank's announcement that it still expects to meet analysts' consensus forecast of a 30 per cent rise in pre-tax profits to $1.98bn (£1.02bn) this year. Analysts noted it would meet expectations largely because it was setting less money aside to cover bad debts.

Standard Chartered laid off 200 staff in Hong Kong last month, where consumer demand has been poor amid tough competition. It forecast yesterday that revenues would be broadly in line with last year's but that profits would grow because of a reduction in bad debts. Hong Kong is Standard Chartered's biggest market, accounting for about 30 per cent of its profits, followed by Singapore with 15 per cent. In Singapore volume growth has been largely offset by pressure on margins, with full-year profits expected to be similar to those of 2003.

Peter Sands, the finance director, described Hong Kong and Singapore as "soft spots" but sought to reassure analysts by saying that overall momentum was good. While the bank expects its overall cost-to-income ratio to be in line with 2003, analysts were concerned about rising costs in consumer banking, which are set to outpace revenue growth this year.

James Leal, at Teather & Greenwood, cut his rating on the stock to "hold" from "buy". He cited the trading update and the cost issue, and voiced concern that Standard Chartered had been recently finding it difficult to make acquisitions and had lost out to HSBC and Citigroup, its biggest rivals in Asia. "There is a worry that perhaps it lacks the firepower to make acquisitions," he said.

Standard Chartered has indicated it may not bid for Korea First Bank, which is controlled by Newbridge Capital, the US private equity group. This is another setback in its efforts to expand in Korea after it was outbid by Citigroup for Koram this year.

In Hong Kong, where dozens of banks serve a population of just 6.8 million, Standard Chartered has sought to raise its profile by refurbishing half its branches and buying some that it had previously leased. But consumers' appetite for loans lags after the economy suffered four years of recession and took a hit from Sars. A spokesman for Standard Chartered said: "Given that the economy has been down for a long time, people are wary of credit." The shares closed 2.1 per cent lower at 961p.