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Standard Chartered Q3 income falters, fresh compliance worries ahead

Standard Chartered reported falling income and lacklustre third quarter trading on top of fresh compliance worries on Tuesday, laying bare the task it faces to rebuild revenues hurt by a sweeping overhaul.

The Asia-focused lender reported $3.47 billion of income for the July to September period, down 6 percent from $3.68 billion for the same period a year ago, at a time when several rival investment banks have reported bumper trading results.

Billy H.C. Kwok | Bloomberg | Getty Images

The bank also flagged fresh compliance and regulatory challenges after confirming Hong Kong's financial regulator planned to take action against it in relation to its role as a joint sponsor of an initial public offering in 2009.

The disclosure comes days after Swiss bank UBS also said Hong Kong's Securities and Futures Commission was investigating its role as sponsor of certain unnamed stock market listings in the Asian financial hub.

Third quarter underlying pretax profits were $458 million compared with a $139 mln loss in the same period last year, but this failed to offset investor unease with the disappointing income.

StanChart's shares fell 6.3 percent by 0921 GMT, the worst performing stock in the benchmark FTSE 100 index.

"We now have a stronger balance sheet...but income and profit levels are not yet acceptable," Chief Executive Bill Winters said in the statement on Tuesday.

The result marks a second consecutive quarter of profitability for the London-based lender after it swung to an annual loss for 2015, hit by the costs of revamping its management team and exiting out-of-favour markets.

Since he joined the bank, former JPMorgan investment banker Winters has announced plans to axe more than 15,000 jobs, closed the bank's stock trading business and raised $5.1 billion in capital as part of efforts to restore profitability.

Those efforts have slashed costs at the lender but also hit revenues, prompting the bank to defer its goal to reach a return on equity of 8 percent by 2018 - a target analysts had long deemed unrealistic.

Standard Chartered said its common equity tier one capital ratio - a key measure of financial strength - dipped slightly to 13.0 percent from 13.1 percent.

The lender scrapped its dividend and launched a $5 billion rights issue a year ago in order to bolster its capital levels, which were a cause of concern to investors and analysts having fallen to 11.4 percent by the end of September 2015.

Investment bank

StanChart is the fourth major British-based bank to report third quarter earnings, after Lloyds, Barclays and RBS last week all showed signs of coping better than expected in the aftermath of Britain's vote to leave the EU.

While investment banks with strong bond trading units including Goldman Sachs, Morgan Stanley and Barclays have all posted bumper third quarter earnings, StanChart appears to have missed out.

The bank's Financial Markets business posted income for July-September of $714 million, up 11 percent from $645 million for the same period a year ago but below the outsized income boosts of over 50 percent seen at U.S. banks for the quarter.