Q3 2021 Standard Chartered PLC Earnings Call
[music].
Welcome to standard chartered plc third quarter 'twenty 'twenty. One results today's presentation is being hosted by Bill Winters Group, Chief Executive I'm, Andy whole Foods group Chief Financial Officer. Once they're opening remarks are finished there will be an opportunity for question and answer is to ask a question over the phone. Please press.
Star one on your telephone keypad at any point joined the presentation or tenants Lee. Please use the question box available on your webcast page to submit your questions at this point I'd like to hand over to Bill to begin. Please go ahead.
Thanks, very much and good morning, good afternoon, everyone and thanks for joining us for our third quarter wrap up I'll say, a few things upfront and it will take a few details and then we'll both be available for Q&A afterwards.
This is a strong quarter.
The strong first three quarters of the year, reflecting the ongoing progress on all of the elements of our strategy.
<unk> business continues to go well, they're very encouraging to see the improvement in freight volumes.
And province.
Markets has continued to operate at a strong level.
The affluent client strategy growth is ongoing.
Very encouraging for us to see steady growth in demand across that affluent proposition. Our digitization trends remained very strong, especially in the mass market. Obviously, you had a more detailed discussion on the digitalization agenda, a few weeks back.
That is an encouraging ongoing progress and as you can see credit discipline remained strong due to the asset quality remains good and encouraging.
Just a couple of comments on the sustainability.
Yes.
Our focus is paying off so we're seeing a good steady increase in transition and sustainable finance I would think that that has a long long road to run and very encouraged by the.
The positioning the bank so far I think that combined with a thought leadership position.
Gave a very detailed assessment of our transition plans in a zero.
At the end of last week, which I expect will be well received as people really digesting the detail.
Got it.
Pretty great lengths to understand and then communicate methodology that we're using there is no right answer to this.
This is the bottom line of all this is that we have a plan to get our banking zero by working with our clients and we believe that.
The transition to that proposition and opportunities for us given our strong starting position and our focus on this early stage.
Should either entirely or close to entirely where maybe beyond entirely offsets any drag that comes from the from the net zero transition process. So overall feeling in good shape there.
Can you comment on outlook Q.
Q4 is typically a seasonally slower quarter and the October results year to date or data that could results to date suggest that this year will be no different.
The momentum over the course of this year the leaves us confidence that our franchise can deliver that top line growth is 7% and positive jaws as we look to 2022 and beyond.
Then I'll hand over to Andy and then that would be up for Q&A.
Well, Thank you Bill and good morning, good afternoon to everybody.
Starting with slide three and the usual financial overview.
Covered this briefly and then we can get to the detail in a minute.
Operating income in constant currency <unk> EBIT is up 6% year on year at three $8 billion.
A return to topline growth in the quarter supported by good business momentum in many of our larger businesses.
Even adjusting for a further <unk> nine adjustment that we booked this quarter and last year's accelerated bank assurance, but still represents a encouraging 5% underlying growth.
As Bill just mentioned trade that 2% to that transaction banking as being particularly strong which is encouraging as we think about momentum going into 2022.
On your income the underlying net interest margin is broadly stabilized as we anticipated and the momentum has continued in all fee earning businesses.
Moving down to expenses, they were 3% high up on a constant currency basis, mainly due to the increase in performance related pay and more investment in digital ventures, which many of you heard about during our recent innovation and digitalization event.
Importantly, the return to income growth enabled posted income cost jaws of 3%.
Credit impairment $107 million in the quarter continued to remain low with the management like broadly stable as a shade over $300 million I'll cover this in more detail shortly.
This all led to a 50% improvement in underlying profit before tax constant currency of $1 $1 billion.
Effective tax rate improved 23 five.
The geographic mix of profits.
High profit started seeing the impact of non deductible costs.
Altogether this contributed to a seven 1% royalty print.
Our capital liquidity positions remained strong enabling us to respond quickly.
Yes.
Yes.
Our CTO at 14, 6% continues to be above the 13% to 14% range that we have previously indicated we intend to operate within.
As we assess opportunities to further strengthen our franchise.
Weeks and months, we will provide an update on our capital management actions and shareholder return intentions, when we announce our full year results in February 2020.
Alright, let's start looking in more detail at our income performance on slide four.
This is the usual view of income byproduct, excluding DVA with currency fluctuation stripped out highlights the underlying momentum.
Starting with the top chart, which shows the year on year <unk> comparison.
If we execute the second is largely final tranche of the <unk> for us non interest rates adjustments post $96 million.
And the prior year at $53 million acceleration of Bank assurance partners.
Income has increased as I, just mentioned Thats a healthy 5%.
But it is allstate lined oval.
Let me add some color to the product level highlights moving from left to right.
Treasury and other income more than tripled.
The improvement is due to the reduction in net funding cost paid and received from liability.
Net products.
This reflects the relatively lower interest rate environment, this year and work undertaken to improve our liability mix.
Financial markets is up 4%, excluding DVA MDI for its non adjustment within macro trading we saw sustained growth in tonne plays with high foreign exchange income and commodities, having benefited from higher prices offset by a reduction in the rates business due to unfavorable movement.
Yields.
You may recall as we integrated the majority of the corporate finance business into financial markets earlier. This year right philosophy through an originate to distribute model. We are seeing early success in this initiative with strong deal closure momentum in credit markets with balance sheet distribution policies up too.
One third.
Lending and portfolio management grew a healthy 10% on adjusted basis. This was driven by M&A deal closures and improved margins.
Retail mortgages and credit cards, and personal loans before they close to double digit growth driven by higher balances across these products.
Transaction banking trading income is up double digits at 13% with intra Asia Cross border flows growing economies in the region progressively open up driving growth in asset balances and deal closure.
I'll switch led to a credit volumes nearly doubled since the low point in second quarter, 2020, and a growth in successive quarters.
Above pre pandemic levels.
And we've also gained market share on a year on year basis.
Both management was down 3% on a reported basis, primarily due to the accelerated recognition of the annual bank assurance budgets in the prior year, which was not repeated this year. Excluding this income was up 6% with particularly strong performance in Singapore, and India, which were more.
Unfavourably impacted by the pandemic last year.
Our Africa and Middle East region recorded its highest wealth management quarterly income in five years this quarter.
And transaction banking cash retail deposits, we saw a familiar story when interest rates move.
Positive income has fallen sharply bolton offsetting growth in balances.
The bottom chart shows income with sequential quarter on quarter Youll see the picture is broadly similar to the year on year to EBITDA.
Hello.
Turning to slide five first of all time, the net interest income and margin the interest rate picture has not changed materially since the half yet.
Our reported third quarter net interest margin was 123%.
But normalizing for the seven basis point uplift from the honest for its not an adjustment. It was one one but on a normalized basis.
This is in line with the guidance we gave in August while we expected the NIM to remain broadly stable.
The one basis point quarter on quarter drop is due in large part to continued high yield compression, which drifted lower by four basis points in the quarter.
There was also a slight shift in the mix the consumer business, but we are seeing Cogs switching from carnival credit cost to fee based and installment products, but this is being partially offset by improvements in pricing and our continued focus on improving the mix of our liability base.
Third quarter net interest income was broadly flat year on year, excluding the latter is not adjustment with average interest, earning assets, 6% offset by similar sized decline in a normalized NIM.
Speaking of interest rates, we said that when the pricing was right. We would lengthen the tenure of our Treasury book benefited from the steeper yield curve at the longer end. We have now started to do this using a portion of our equity base and will increase over time.
Our interest rate sensitivity to a parallel 100 basis point shifts in interest rates across all competency.
As we communicated at the half year is around $1 $1 billion of annualized.
Net interest income, which will substantially sort of flow.
Through to the bottom line.
We believe that EBITDA to benefit is around one two to one five times back to get warm.
As long dated maturities also start to reprice.
We've seen healthy volume growth in all three courses with loans and advances to customers, having 7% will circa $20 billion year to date.
In the third quarter alone they grew $4 million or 2%.
Retail mortgages and financial markets.
Partially offset by the completion of lengths indications that we're in progress of half year.
With that before these expenses Hughes our income outlook.
Third quarter performance supported by the broader macroeconomic outlook reinforces our confidence in the previously stated income guidance, while we expect full year income in 2021 to be similar to last year on a constant currency basis.
With the full quarter being sequentially lower.
Bill mentioned, reflecting two things seasonality comparable with prior years and normalization of the third quarter for US nine adjustment first of all that the current foreign exchange outlook, it's probably a little bit near $200 million $300 million earlier.
And finally, the strong underlying business momentum we've seen throughout 2021 gives us the confidence that our income growth will return to our medium term guidance range of 5% to 7% from next year.
I'll move on to cover expenses now on slide six.
I mentioned earlier that we printed posted incomes cultures of 3%, but the increase in expenses in the third quarter.
That increase was driven by three factors as Youll see in the Boston and foreign exchange rates.
Great.
And investments in digital ventures.
These operating expenses were lower compared to 2020.
We like many of you are seeing early signs of increasing inflationary pressures across our markets as.
As we outlined with our innovation and Digitization event last month. We also have an ambitious innovation led investment agenda to the importance of continuing tight rein on cost remains absolute.
As we mentioned last month, we are deliberately dialing up our investments into strategic initiatives and we expect that about half of our annual cash investment spend around $1 billion will be focused upon fundamentally strategic and differentiating investments going forward.
In parallel we are continuing our focus on productivity initiatives are creating capacity.
Inflation.
Create headroom for the cost of these investments.
For example in October hence not in the third quarter numbers, we completed a significant restructuring exercise in Korea.
Our early retirement program is taken up by around 500 staff representing.
10%.
Workforce in Korea.
We think this will save us mid tens of millions of dollars each year.
Expenses going forwards.
A significant part of the restructuring cost that we have spoken of earlier of about $2 $5 billion will come from this program.
As we had previously said expenses, excluding the bank Levy all items increased slightly in 2021, as we continue to invest and normalized outperformance related pay but including that and the impact of currency translation, we continue to target full year out.
At well below $10 $4 billion.
Turning now to credit impairments and asset quality in slide seven while its credit risk remained elevated our overall portfolio remains stable and resilient.
Starting from the top half of that is focusing on credit impairment.
Year to date charge of $60 million is very low compared to the $1 9 billion charge the same period in 2020.
And looking at just this quarter Chris.
<unk> was just over $100 million down $260 million year on year.
Those are very small next released the management isolate $4 million in the quarter with the retained overnight now at $306 million.
Now moving onto the bottom of the slide.
The highest risk assets in corporate commercial and institutional banking portfolio across the three indicators in the Boston less crop.
<unk> to trend down.
This is the fifth consecutive quarterly decline, we've seen in high risk assets.
$6 billion.
It will bounce a third year on year.
And specifically on earlier that if one excludes aviation.
Now in line with the pre Covid levels.
There's obviously been interest in our China commercial real estate exposure just to reiterate what we have said previously we don't see this as a material issue at present.
Total loans and advances to customer group wide of about $300 billion, we have $18 billion or 6% in commercial real estate globally.
This $18 billion about $4 billion.
Gets to China commercial real estate of which $1 billion is booked onshore in China, and 3 billion booked in Hong Kong we.
We've included a slide in the appendix to provide you with further details on the base.
Clearly the full year impairment charges are going to be significant this year, albeit COVID-19 recovery from the pandemic continues to be high.
However, we are encouraged by the robust levels of export price in many of our markets in Asia and excluding the impact of any unforeseeable events we.
Credit impairment to remain at low levels in the fourth quarter.
And finally to complete the financial overview risk weighted assets and capital on slide eight starting with the chart at the top.
Risk weighted assets were down $13 billion or 5% in the quarter.
Despite client driven asset growth, adding about $4 billion.
There were broadly similar declines in each bucket across retail model changes optimization initiatives asset quality.
Lower market risk.
<unk>.
We do not expect to see such a widespread reduction in auto units in the fourth quarter and indeed expect an additional $3 billion to $4 billion of ours will be rate due to the adoption of new structural foreign exchange rings true growth in the fourth quarter.
But overall, we expect our EBITDA, although you're right.
The only modestly higher.
At the start of the year.
Turning to the CTO unchartered with Bolsa, we remain strongly capitalized with a CET one ratio above the top end of our target range.
Profit after tax of accretion, but 50 basis points allowed us to reinvest in Dupont net asset growth.
As the low <unk> just.
But it isn't about adding 60 basis points the CET one ratio.
Remember the CET one ratio includes a 34 basis points software release.
To come out of capital from the start of next year.
And the structural foreign exchange rate change will reduce both court to seek you want about 15 to 20 basis points.
They are off the software cost will be disallowed the purposes for calculating the ongoing CET one ratio.
The full year 2021 outlook on capital is likely to be around the top of the 13 14 target range on a pro forma basis, excluding the software release.
As we said at the half year results, we generally intend to operate within the 30%, 40% range and there is no change to that Ted.
We will provide an update on our capital management actions and shareholder return plans with the 2021 full year results when we announced those in February.
Two.
And now onto the final slides before we open to questions I'd like to repeat the outlook comments on <unk>.
Right.
Key point is that we've seen continued growth in many of our larger markets Bill spoke to you with further progress we've made against our strategic initiatives.
And we returned to reporting topline growth in the quarter.
This reinforces our confidence in our outlook both for this year and to getting back to 7% growth next year and feel safe.
With that I'll hand back to the operator built on time and take your questions.
Thank you we will now begin the question and answer session. If you wish to ask a question by the would you. Please press star one on your telephone keypad and wait for your name to be announced to come to your request. Please press the husky. Alternatively. Please use the question box on your webcast to submit your questions.
Your first question comes from the line of Amman Rockoff of Barclays. Please ask your question.
Good morning, Bill good morning.
Yes.
Just a couple of questions on <unk>.
Income and cost if I can.
Firstly on net interest income.
I think it was.
To kind of turn it broadly stable NIM in Q4.
A bit of balance sheet growth that kind of.
Q4, net interest income is annually.
Annualizing quite a click below where the street is next year.
So as I think you probably have to grow your balance sheet.
Seven or 8% to hit two.
<unk> 2022 consensus net interest income just kind of interested if you kind of.
Yeah.
How realistic is it that we can carry on.
Annualizing at that level.
In Q3, how realistic is that we can do that kind of.
Low <unk> next year and is there anything else that we should be thinking about in terms of NIM drivers beyond rates.
That could be a potential positive next year.
And then secondly on costs.
Yeah.
Normally kind of index steel medium term cost guidance to inflation.
Inflation, because inflation is running perhaps a bit higher than what we're used to seeing how are you thinking about the 2022 cost.
Number is it harder to keep a lid on that.
What can we expect for 2022 cost base.
Okay.
Yes.
So let me let me take those in order so net interest income for next year.
I think two things one the underlying balance sheet growth that we have seen this yet we see as being encouraging.
<unk> seen a period when COVID-19 effects is still clearly the.
EBITDA showed in number of the markets and we would be very much hoping that we can keep that sort of growth going through next year to date may be picking up a little bit as market progressively move outs COVID-19.
The margin itself. We are we think very very close to the bottom of that curve.
To slightly increase that next year, depending upon the white right when they move.
Obviously, if they did increase to integrate that with numerically take power.
Balance sheet growth numbers that you've got maybe slightly above that but I think between the two but does not call. It 7% number for the top line income bright for us.
Field still stay in a reasonable range for next year.
On the cost front I would say, we'd be very focused upon taking out <unk>.
Most of the coal business now for the last several years to be able to fund inflation and to be able to tell them the increased spend on digitization.
That is some things that you have seen again in the 2021 year.
The costs have remained tightly controlled and while we have invested more into these targeted.
Targeted areas for the normalization of the profit relate Pi.
There is some inflationary pressure clearly in some parts of the business.
Because it's been a lot of commentary on what punishment solid.
Asia, although the banks I guess circling around the site opportunity areas and as we move into next year clearly, we will have more insight knowledge as to how pervasive or not at cost pressure is and clearly in February when we do the updates for the full year. This year, but also talk about penetrating too will prove.
You don't play not just cost, but on the income side as well. So we will cover both of those at the end of February.
Thanks, just one quick follow up then on the net interest income I mean.
Around the structural hedge program and other kind of treasury optimization efforts that might be getting should we be thinking about that as a meaningful close to or into next year is there any way you can quantify any of that.
Yes.
Sure.
We will provide more competition in February so what I would say at this point is it's.
I said earlier, we just started to put some of those hedges in place. It's relatively early days. It is a proportion of our equity base that we are now structurally hedging over time will increase that proportion.
But it certainly will provide some underpinnings for the 7% range for next year numerically, it's not big enough yet.
It will be wallet for taxes at.
While the culprit is about 5% to 7% range because it tends to be yet.
Okay. Thank you so much.
Thank you. Your next question comes from the line of Andrew Coombs of Citi. Please ask your question.
Okay.
Morning.
One big picture follow up to that previous question and then one more on the mining shot.
Big Picture question, when you stack up the second great target.
2018.
I think at the time.
Penciling in similar.
Right right.
And then you are coupling that with 4% uptick right.
That'd be right right.
I'll, just say, we've actually had quite a large headwind.
That guidance that you have right now.
Now, let's turn to guidance Diamond where.
Not too hypothetical because it becomes a tailwind.
Another theme or thoughts on the moving parts.
Five seven in 2022, and then it will say why we guide beyond 2020 Covid.
Wow.
Between the various revenue lines.
And the second one more on the mining shy structured finance the $156 million.
That core tier I know this can be quite lumpy I think the quarterly run rate can be around 100.
What do you think that drove out as we get into Q4. The pipeline is still very strong or should we expect it to revert to know thank you.
Yes.
So the 5% to seven to say if you say, we said a while ago.
Obviously, we have to.
Paul is that during the course of Covid.
And as we come out okay great.
Be reappraised, just sort of where we are at and what we think should be the also the possible.
And to your question, let's be the lots of moving parts that occurred in the intervening period.
Clearly has seen the headwinds of margins that you've referred to hopefully sell through.
So the settlement maybe build become tailwind.
Slightly more beyond 2022.
We have seen balance sheets, but early days of Covid, obviously with Atlas the impacts that we would see.
Textbook positivity to the growth that has happened subsequent to that.
So I would say if you put it all to get those plus there is that we now focus to pull him to say a couple of years ago.
Take the Bulks.
Digital banks in Hong Kong.
Chuck that's a blueprint, whereas it is now a reality and different parts of the business clearly coming out of Covid at different rates.
But somewhere in that 5% to 7% Covid, you'll still make sense. If you look at GDP growth expectations will be obviously inflation is playing a role is that again, we still feel that thats the range.
Should be possible and although it gets less easy to predict beyond the 12 years out but that 5% to 7% is not unique to the 2022 general indication for <unk>.
For years beyond that.
On the structural finance.
Could you comment on that.
As Andy just as your question suggests that there are opportunities on the first the majority of our income is not imminent.
Which is growing faster.
Both the network income.
As I covered earlier.
Sure.
Both of these announcements.
We're growing at higher rates and momentum is good it's a great assistance.
Obviously.
Sensitive or insensitive to interest rate levels.
And obviously, that's a big component of the overall time to 7% growth target that we got.
We feel pretty good on both fronts.
Yes.
So the second question I mean in structured finance the Aviation Act.
We think that it does tend to move around a little bit.
So it's less of a continuum.
Dependent.
Market conditions.
So I would not read a new trend line into boxes.
Strong quarter.
That is all.
<unk>.
Thank you.
Thank you and your next question comes from the line of Joseph Dickerson of Jefferies. Please ask your question.
Hi, Thank you just just quickly on the on the cost thing Andy when you were walking through some of the moving parts on costs next year are you guys committed to operating leverage next year.
That's the first question and then could you just provide a little color on what's happening.
On the cash management SaaS side is that primarily just interest rates depressing that because that number is down I think 16%.
So any color there would be helpful. Thank you.
Okay I got the first half of the question I definitely second half of the question, but even ex the answer would be I.
I mean on the cost side and in terms of leverage will update in February on where we're at.
Just to reiterate we have had very tight cost control. We continue to have already tight cost control we absolutely.
We want to invest in digital initiatives, we want to get that top line growth guidance, but we will provide an update on <unk>.
Correct.
The second part of the question was on the cash management, our revenue performance that was down 16% year on year is that is that the effect of high bar or is it just volumes.
It is a primary rate two types, it's not so much a volume effect and it's not just high pool as hibor and pump, but we created cross currency.
It is part of our business that is very much better than the full brunt of rights.
Sorry to come down.
Then the income from that part of the business diminishes hopefully with the rate cycle, starting to pull some of that should start to pull some as well, but not as the business is.
<unk> was the corporate business, but it is very greatly impacted yet.
Thank you.
Thank you. Your next question comes from the line of Martin like Kim with Goldman Sachs. Please ask your question.
Yes, good morning.
Could I just go back to that just to add to the comments on that.
And then outlook from here it seems like the guidance.
At least on an underlying basis, excluding the one off effects and pre Q guidance stabilization in margin with them I guess loan growth to buy <unk>.
<unk> expansion from here.
Can you give us a scenario, you'll say that next year, when we get a hike in U S dollar.
Could you help us understand how quickly that the impact of the hike feeds through in terms of your P&L.
Secondly, I'm.
But the one thing to front run.
<unk>.
The company's comments for the full year, but I was just wondering previously the guidance was.
We'd like to operate well within that 13% to 14.
Target capital range now now the expectation is for ending the year at the outside.
And should we expect to start to fall well within this range within a relatively short period of desktop.
And firstly I was just wondering if there's any comments with regards to.
Citibank asset sales. Thank you.
Right.
I think that became a three part question. So let me take the middle of that.
On the NIM you referred to a hike in rates now as it can be a hike in rates. So I guess, many will debate whether there may be some pickup in the Reits I suspect is more likely.
We have put the interest rate sensitivity into the package, we have done I commented upon earlier.
And I think you can sort of work out the Max drove that 100 basis points across all currency full year $1 $1 billion. So it depends very much upon your view as to.
How big is or is not.
A reasonable proportion of Apple is short sighted that if we do get the benefit coming through if you look at pull deal costs.
Suggests that actually the benefits will be more a 'twenty three 'twenty four but nonetheless, it was some certainly upward improvement right because that would be helpful to next year without any doubt.
13, 14% as I said it is our intent to generally to be operating within the range.
The reduction has boosted us well above the range, but we've got a couple of prices pulpwood.
Structural hedging, which will take it down to top range.
It's not our intention to be sitting above one <unk>.
The Orange Red Hot and when we talk in February we'll talk about where we're at at that point in time. We've also as you look at opportunities to strengthen the business improved profitability not because what we do.
Mike.
Great hopefully, we will have more clarity on some elements of that which.
Which could lead to your third question on the city assets, which we have.
We have said, we can't comment in any detail, but clearly where there are opportunities to selectively to strengthen the franchise you would expect us to have a look at those whether we do anything what we do.
Truly within our control, but we will provide an update on that if there is any update you can provide it as when things unfold.
Thank you very much.
Thank you. Your next question comes from the line of Tom Rayner Ms. Please ask your question.
Yes, good morning, everyone.
Could you confirm the size of the gain within aviation finance place and is that linked to the $35 million.
Other impairment you took on that lease portfolio.
And then also on revenue did I hear you say Andy the.
The FX adjustment is closer to 200 now so does that imply.
The benchmark revenue for 2020 is about 14 96 five call. It 15 billion is the benchmark that you are looking to sort of drill into 2021 similar revenue level.
And then just finally on inflation hasn't been any change to what you perceive to be inflation intend that youll cost target beyond this year, given what's happening across the world in terms of replacing the questions. Thank you.
Yeah. Thanks, Tom.
Within the structured finance.
Wanted to cadence from aircraft disposals.
To be a little bit lumpy and it's on the market.
And when we can do so.
Slightly higher than average quarter from that.
But.
That's the primary reason.
Both the interest rate sorry, the exchange rate translation right. It does move around over the course of the year as you will anticipate we had put in a rough sort.
So the 300 million proxy previously to rerun the numbers today, Cory near where the 200 and the 300 level, but clearly with a couple of months got it.
But we'll still have a little bit of time to run its course.
Haven't guided at all the statistics.
For the current year other than saying it will be similar to last year on a constant FX basis.
You.
You could say.
And what are the numbers EBITDA got some whatever assumptions you could got to form the FX side.
On inflation, we've had different levels of inflation over different periods of time. There is business had earlier and I think we read in the price a little bit of upward pressure on that.
We will clearly doing what we can do to take operating cost out with this pump.
Come back as much as we can possibly do decrease a bit early we do want to make sure we've got sufficient capacity to be able to invest into our new digital assets.
I think probably February with another four months under our belt and just seeing what exactly is happening on inflation will be in our pension position to provide an update on the cogs on the cost side 2020 to interpret.
Okay. Thank you then just on the just on the aviation things still the other impairment of 35, I'm just trying to understand what you've done in the quarter you sold some aircraft.
I have to take an impairment so the other.
Payment line and you gain is that that's all part of.
You'll be structuring of that portfolio.
I'm just trying to understand what exactly is happening.
Yes, I mean, we when we sell at Cros, we will have some difference between carrying values.
<unk>.
What we have realized we will sometimes carry reserves for Nate.
Maintenance, which with the release to the extent they are not used at that point in time.
This is standard industry practice site, we have had some movement, but it's been the.
Income and the ultimate patent on with respect to place devices.
It's not taking the overall scheme of things, it's not abnormal insides terms, just lay EBIT accounting for it properly it does work relative to some of.
The deals that closed in the quarter.
Okay. Thank you.
Thank you. Your next question comes from the line of Omar <unk> of Credit Suisse. Please ask your question.
Good morning, Thank you for taking the questions.
So firstly I wanted to ask about.
Rate sensitivity.
Can you make some comments on what.
Deposit beta assumptions standard chartered is making.
Under the old.
New guidance.
And the key markets of Hong Kong, Singapore, and Korea can.
Can you talk about the show deposit.
Managed to rates versus.
Explicitly.
Mark.
Great.
Could you, perhaps just elaborate on the discussion around.
<unk> sensitivity exactly where it's coming from just because I think previously you might have made some comments that the.
Our sensitivities Mexicali short dated so just wanted to woods.
Change there.
Then my second question is just on costs.
Could you, possibly comment what the existing I guess.
The current planning assumption.
Expectations of underlying way.
Wage inflation again in the key markets Hong Kong Singapore.
India, China Korea.
Yes, we can.
Go and think about that thank you.
Yes, let me I'll, probably address the place at slightly higher levels of sensitivity analysis. We do we are looking at across 59 different geographies. We're looking at many different asset classes, many different liability classes and trying to as best as we can do to work.
How we think things will move.
But from a specific deposit beta with that but we.
We are educating ourselves in part by what happens as we came down the rates curve.
As a consequence of Covid, because it's given us a more reach.
Real life of relativity as to some of the economics olden days. So the numbers that you see that as a whole both dividend is the aggregation of a lot of assumptions, but country by country and building out.
Of that total number.
The year to impact so just just to be clear on this in the $1 1 billion basically say, if there's 100 basis points change absolute in the first 12 months what is the impact of the pull them out.
We look at behavioral change, we will look at contractual change et cetera.
Outside of the 12 month period, some customers do have contractual relationships with us that didn't enable them during.
During that 12 month period.
And when the maturity comes up outside the 12 month period, and we expect that they would reprice to the new rate there will be some further upside on that one 1 billion, but now that obviously is sensitive because we will have to take into account behavior's, whether they are likely to roll over at a high rate whether they move on.
But our broad estimate that it's probably time to get to the second pad you will be one two to one five times.
First year impact that we have published.
On the cost side of it.
The wage inflation as I said just earlier.
Early days, we are seeing pockets of inflationary pressure and probably a ton we comes to the February update so as a result, we'll have another four months.
The experience.
And therefore, I think is more appropriate.
On the cost outlook in February I hope to see at that time I'll place upon income and.
CET, one ratios et cetera.
Okay.
Thank you.
Yes.
Thank you. Your next question comes from the line of MS. Costello of Autonomous Please ask your question.
Hi, Good morning, a couple of questions from me as well. Please firstly I saw that you'll pay the <unk> went up by 22 bps.
Just to go up by 22 bps.
Q4, I wonder what drove that.
And how that's influencing your thinking about capital management into next year I presume would be.
It means because I think that's good.
If I'm thinking about running down core tier one ratios.
And my second question is on your sustainability numbers you've got.
The slides that your income was off 110% year to date.
First half states that was just up 55% year to date.
I wondered if you could let us know what the absolute numbers are in terms of that income because I think it is targeting a billion of income within the next couple of years from that business.
If you can give us an idea of how you manage to etcetera. So domestically during the third quarter and what the absolute number though I'd be very grateful. Thank you.
Yes, Thank you Melissa.
There are some movements on the pillar to pillar one but overall.
It is not impacting the overall.
CET one ratio at all.
And maintenance to be in the 30%, 40% range is still well above the regulatory minimum and.
Therefore that is what we will continue to operate within.
On the sustainability income, we will be publishing numbers on that from the start of next year.
But as you say that has pretty much doubled so far this year at least fair to say, we've gotten through some of the sustainability discussions at the moment. So that we can make sure. We are more fulsome I'll discuss just the market as we move forward.
And the 1 billion that Youre looking for from that business that is achieved in 2024.
So exploration type thing.
I.
I think we actually put a timeline to it but.
That is what we are borrowing in the business as close as we possibly can.
Okay alright, thank you.
Thank you. Your next question comes from the line of Robert Noble of Deutsche Bank. Please ask your question.
Good morning, all.
All right.
The rate impact, presumably that so our balance sheet posture switching what do you see the rising rates, how do you see impacting your financial markets businesses, if that's all right.
Secondly, the <unk> benefit until I think you said last quarter and EBIT.
About $240 million slightly.
Slightly higher than that.
So how much of this is.
Temporary versus permanent modular end up higher than expected or is it just a.
Very small number.
Thanks.
Yes, okay.
So the financial markets business sort of like volatility recently.
When there is unpredictability on rates, obviously, we've got clients.
Looking to her.
Hedge.
What we have published a paper right in parts of the group as a whole relevant, especially by product by country level whatever that gives us if we haven't gone into that full level of detail.
But roughly about 100 basis points won't quite well.
The full impact Greg.
On the <unk> nine adjustment as we would say that I think at the half year, we were still working through.
Book.
Of the the pool.
Forming loaded and we have an extra two months at that time as to what would likely be the full effect of the numbers.
A little bit higher, but we'd indicated at that point in time with pretty close to being through the full book now that may be a very small amount, but it will be very small in cogs.
Cool.
I think the numbers we've got there.
Much now done.
It is a sort of catch up from what we've done in the past only proportional back.
Yeah. So the majority is ketchum, Paul and minority is within year effect.
The accounting, but now despite big double the devices as we go towards through 2022.
Deal.
I think you said in the past a third of it is.
Permanent uplift in two things.
So proportionately thinking that he had a close look at it.
Yes.
As a rough proxy reminders.
Alright, Thank you very much.
Thank you. Your next question comes from the line of Fahad Kumar of Redburn. Please ask your question.
Hi morning, Thanks for taking the questions.
I had another question sorry on Opex, maybe just to clarify.
After Joes question, how do you actually if I look this year and I adjust for FX for 2021 based on your guide.
Your revenues are flat and your cost plus for us, it's minus 4% kind of jaws of operating leverage.
Next couple of years I think consensus has plus 3% and I appreciate you're going to give more in February but.
Hum.
How are you going to convert operating leverage I'm, Tony around given the level of investment that I think you appreciate that you need to make to drive the digital strategy and the kind of inflation on the ground. It does feel like quite a turnaround to hit consensus and your 7% <unk> target and then my second question was the carriage.
Occasion.
And I may have misheard, but are you staying at the top end of the range for 2021 on your capital.
As a kind of buffer for potential.
Potential acquisition of the 50 assets. So is there something else as to why.
What kind of within the middle of that range for 'twenty one thank you.
Yes, I mean, if you look forward into the operational leverage.
We all well know.
A number of roofing policy I was trying to scribble counts.
Pursuant to this point in time, it's not the easiest things.
We have seen good asset momentum, we have seen good cost demand and as I said earlier with the effects of Covid hopefully wearing off progressive advantage with time that.
Should bode well for where we are in the future. The net interest margin just repeat it seems to be around the bottom now and if we see some increase in interest rates. During next year that will be marginally helpful to that calls the call.
So I can say, we are saying that the cash investment with ICM.
In absolute terms, we don't think that will change in total, but the mix of it but we'll be getting in digital both strategic investments will increase but not the April increase so it's a mix change within that.
As said previously over the last three or four years, we've done I think a pretty good job chiseling away. That's a cool color space in order to be able to create the capacity to fund.
The inflationary effects and.
The recent years increased the capacity of those investments so we'll put that all together well.
Talk about that.
But rest assured huge focus in the business.
And as we talked about in the digital innovation section more of a focus now on income stream coming from different sources multi.
Amongst venture venture, which starts in Singapore, and looking at where we can develop other income streams with additions.
We have available so often.
Up until now.
On the CET one we have always said if we have golf spec capital, we will first look to invest in the business.
Organic it might be inorganic.
There are not opportunities in that area. Then obviously, we'd look to return any excess to shareholders that could be below that dividend, where it could be bought way but buyback.
It is an inorganic opportunity if you referred to.
At this moment, which may or may not come through as it's been.
But just at this point in time, often says that opex to just hold our powder dry to see how that plays out.
February we should be able to be clear as to exactly what which I think probably weigh in the investment business.
Returns to shareholders.
Thank you you could just one quick follow up I mean, so if I exclude rate rise in 2022.
And you can say notes. This question can you do you think you'll generate positive operating leverage X rate rises in 'twenty, two or is that realistic.
Well I think in February we'll be better able to do that we will have a clearer view as to where the rates are going.
As I say, we have got the balance we will notice.
Between making sure we are investing particularly in the usage.
Business to make sure that we are giving ourselves the best possible runway for future income growth.
The other thing we can we have funded the pulse to contain the core cost base within the business, but I really think it's best that we address that in February.
Thank you very much Jess Thank you Buck.
Thank you. Your next question comes from the line of Robin down HSBC. Please ask your question.
Good morning apologize huge cold.
So a couple of questions firstly.
Collaborating with the Boston discussion.
Much shorter term in Q4.
Because we were supposed to get the bank of Korea raising rates.
Harper rates are kind of creeping up but globally, we see.
Seasonal pick up in December.
I appreciate this more liquidity in the system.
The prior year.
And then you've got obviously a little bit of <unk>.
Actual hedge benefit perhaps coming through I was just wondering if Q3 is the thought.
It could be the trough.
So whether or not you.
Might be anticipating a little bit of a creep up in Q.
Q4.
The second question I'll call. It is it really trying to pull free one.
The mortgage income fell in the quarter, even on a constant currency basis.
Slightly surprised by that given this.
Continuing underlying growth with them brokerage volumes.
I'm just wondering if you give me a thing competition somewhere.
If there's any kind of pockets of competition that you would.
Call out for that line.
And then just finally on the Treasury income.
It seemed quite strong in Q3.
Historically, I think you've tended to book gains.
The first half of the year I just wanted to again those are things that you want to call out from Treasury in Q3. Thank you.
Uh huh.
Okay.
Q4 margin points to predict the margin with great precision who is tricky.
I would reiterate that we feel we are very close to or around bolt some payroll one or two reasons. If you highlight why the EPS it could be a little bit about the side.
Three months ago, we saw pretty high, but where it goes as far as it was going to go a little bit further.
There are always some things are.
Difficult to predict accurately.
If your hypothesis is right thing too that it's good news.
But I think we all look at this as being broadly stable for the next quarter could be a fraction of it could be down a fraction of our biggest thereabouts.
On the mortgage side, we have seen good mortgage volume growth.
I think in the law in the mortgage and auto are combined in there there is some.
We also saw it so overall I think the <unk>.
Mortgage income relatively.
Stable too.
Closing the period Treasury income.
Depends on the quarter as to what we do by the way of realizations obviously.
Obviously triggered some guidance, but it depends a little bit why don't book is positioned relative to rates.
Again, it will move around quarter by quarter, not need people, who can give you.
Specific number by quarter on we will do what is best for the bank in terms of bolt.
Management of the rights of Managements office footprints.
Liabilities that we have built at that point in time.
Great. Thank you.
Thank you.
Thank you. Your next question comes from the line of Guy Stebbins of Exane BNP Paribas. Please ask your question.
Hi, good morning, So two questions just a couple of follow ups or any site.
Especially one on costs and FX. So you revised down sports when can we see it but could you talk to an offset in the cost of onset.
What the year over year FX headwind the cost guidance is now predicated on for this year.
Okay, so any incremental benefit that being offset by inflationary pressures that some spend et cetera.
And then on capital So you talked to beat the top end of the guided range success to generate platform software. Just wondering is there anything else, we should be bearing in mind outside of strategic actions when assessing the freight is actually churning capsule.
Contextual Captisol I guess headwinds in Q1 next year on <unk>. So you get paid it's noise.
Traditionally that's my checks, it's really just the software that we should be probably holding the cost position for when to keep out signs of excess thank you.
Yeah. Thanks, Thanks, guys.
So on the FX.
We have a slightly.
Different proof of income.
Currency, which we call pulse, which I think.
You can understand the two to 300 range, we have been 300 or 200 on the income side I'd say the cost number is probably more middle of the range to high end of the range rather than the low end of that.
Not quite as Big a challenge is on the income side.
See you on the next thing is anything particular to call out.
We've got structural FX with the salt flat and if there were anything inorganic.
You got it could be an impact, but I think all of those of that theres, nothing, particularly called out as being unusual.
Okay. Thanks, that's helpful and good luck.
One other point on that.
So just check is it just equity that Youre basically going ahead, you know what you might consider interest rate sensitive deposits just point of clarification that thanks.
And the main suite.
We are focusing upon.
Hedging of the equity.
As said earlier, we felt a portion of that.
Over the coming months depends you're probably right. So we will we will increase that we are going through and having a look at where there are other opportunities that we think are opportunities that we will it will bring that into the fold.
Okay. Thank you.
Thank you. Our next question comes from the line of therapy.
Great.
Of Goldman Sachs. Please ask your question.
Thanks, Thanks for taking my question I, just have a quick one on EPS.
It seems like light duty I think so.
Right.
The language is quite strong.
So can you just remind us of the payout policy and how does the board think about dividend.
Thank you.
Sorry, I didn't catch the very first part of your question EPS.
Yes.
Okay.
At an EPS.
Yes, I mean, I think that when we come to separate the way you report will will pretty much look at this is about 13% 14% range is something which we have said we are prepared to operate dynamically within that any any pause in that right drew obviously hot money.
So yes, there are opportunities out there, we'll have a look and see what we can do to actually improve the position that if we've got surplus then the question will be on the one hand, we want to have a degree of momentum on dividend. So that shareholders have predictability on that front and to the extent having done.
There is still more than I think the buyback route is quite preferred particularly with the share price.
By historic levels very low priced at this point in time.
Not a full will progressive dividend policy was intended to be progressive as much as we calculate it.
So it will be driven more by that that will be driven by an EPS EPS will decline ratio plus site.
Thank you.
Thank you you'll.
Final question comes from the line of James <unk> of Society Generali. Please ask your question.
Oh, hi, good morning.
A couple of questions on the capital position and kind of where you stand relative to the target range.
I was just wondering kind of how you think about the target range itself I think when you set that.
A few years ago, the bank was inclined to different state with less balance sheet income statement and I think some probably some conduct tissues at that point.
So why don't you kind of starting to lower your target range. Please.
Yes.
Yes James.
Setting a target rating should collect a number of inputs.
<unk>.
One is how do we think the banquets.
A stressed situation have we got enough cover that hopefully bankers independent position on that front, we've got what the regulators are required which clearly it's a level a little bit more of the way. We are at the moment. We've also got rating agencies take into account because.
They will rates held and we want to make sure that we're operating in defense <unk> space on that front. So you put all of those to get we've got the complexity of capital requirements at the local level multiple lead to calculate a PRA basis. Some of them are calculated the local country level, we need to make sure that we are compliant local country level in order to be able to get distributions up to prepare.
That's in order to be able to return capital to shareholders.
When you put all that together it is a complicated mix, we feel about 13% to 14% range.
Is about the right place to be some other banks are bit higher some of the banks a little bit more each of them has got its increases but could these boutiques that we feel is about right for us where we are at this point all right cool.
Okay. Thank you.
As previously.
Could you just reiterate what we said a few times is that we're perfectly happy to operate within that range and for the right opportunity. We would go above the range for a different environment than what we see right now we would be at the top of the range.
And as Andy mentioned, a few times, we've got opportunities right now that we that we will have to see how they play out and to determine where we settled.
But certainly when we look at this environment, our underlying asset quality and the opportunities that we have for FY <unk>, we're perfectly comfortable operating.
The middle of that range or below for the right opportunity.
Lovely thank you very much.
Thank you I will now hand over to bill for closing remarks.
Yes, thanks for a lot of detailed questions.
Overall, we will continue to reflect good momentum on the underlying strategic objective.
Very happy to be able to repeat the targets on 5% to 7% income growth with positive jaws.
Strong capital strength.
Asset quality.
And we will obviously provide some more detail based on what we see in Q4, but also assisted in the market we get to February. Thanks, again for the time and the focus.
Okay. Thank you.
Concludes today's presentation. Thank you for participating you may now disconnect.
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