* H1 operating profit down 20 pct from year ago
* Profits set to fall for 2nd year after decade of growth
* Financial markets to blame, hit by regulations, trading
* Head of financial markets business Feder leaves for 1 year
* Shares fall 5 pct to 2-year low
(Adds CEO comments, details)
By Steve Slater
LONDON, June 26 (Reuters) - Standard Chartered
warned profits would fall in 2014 for the second year in a row
after first-half earnings dropped by a fifth due to tougher
regulations and low market volatility in its trading business.
The bank also said on Thursday the head of its financial
markets arm, Lenny Feder, would take a one-year sabbatical and
would not return in the same role. An industry source had told
Reuters earlier that Feder would take a sabbatical.
Standard Chartered makes more than three-quarters of its
profits in Asia, Africa and the Middle East, which helped it
come through the 2008 financial crisis relatively unscathed.
But after a decade of sustained growth, the bank has had a
rocky patch and been hit by big losses in Korea, a slowdown in
its main Asian markets and the impact of tougher regulations.
Last year, the bank reported its first drop in full year
profits for a decade and it had been expected to show a 4
percent rise to about $7.2 billion this year, according to the
average analyst forecast on Reuters Eikon.
Its London-listed shares were down 4.3 percent at 12.03
pounds by 1100 GMT, after falling to 11.73 pounds, their lowest
level since August 2012.
Revenues at the bank's financial markets business, which
includes equities, commodities, foreign exchange and other
capital markets activities, are set to fall by 20 percent in the
first half from a year ago, the bank said in a trading update.
Standard Chartered and its rivals have experienced a slump
in trading volumes since the middle of last year as clients do
less business in a low interest rate environment and banks have
to hold more capital against these businesses. Interest rate and
foreign exchange trading have been particularly hard hit.
Analysts said the weak trading conditions in the first half
added to other difficulties in some of its markets.
"Cyclical headwinds are yet to arrive in full force in the
bank's two key markets - Hong Kong and Singapore. Not that Korea
or India is out of the woods either," Chirantan Barua, analyst
at Bernstein, said, who rates the bank at "underperform".
"Pack that in with a challenging and uncertain capital
regime that won't be resolved 'till the end of the year and you
have a great deal of uncertainly around the stock," he said.
Standard Chartered said its revenues in the first half of
this year are expected to be down by 3-7 percent from a year
ago, and losses from bad loans would be up by 15-19 percent, in
line with expectations.
"The first half does look disappointing ... the main
challenge has been in financial markets, and the challenges
there are very much affecting the industry as a whole," Chief
Executive Peter Sands said on a conference call.
"We are responding to near-term challenges in the way we
manage costs, risks and the deployment of capital, and
delivering on our strategy and getting the right balance between
growth and returns," he said.
Sands has restructured the bank and a management reshuffle
last year included the surprise exit of Finance Director Richard
Sands is expected to make more changes to the financial
markets business, industry sources have said. They said it has
struggled to build its equities business, and will need to adapt
to the difficult conditions in rates.
The financial markets arm contributed revenues of $3.7
billion last year, about 20 percent of the bank's total and a
third of Standard Chartered's wholesale bank division.
Sources had previously said the position of Feder, who has
run financial markets for seven years, was under pressure. The
bank said his sabbatical was for personal reasons and will start
on July 19. It said it had started a search for a permanent
Asked if was fair to assume Feder will not return as head of
financial markets, Sands said: "Given we are initiating a
process to make a permanent appointment you can draw that
The bank said Mark Dowie, head of corporate finance, would
head the business on an interim basis.
(Addtiional reporting by Saeed Azhar; Editing by Jane Merriman)