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UPDATE 2-Korea, currencies dampen StanChart profits

Lawrence White and Steve Slater
Tuesday, 29 Oct 2013 | 5:59 AM ET

* Profit, income down in Q3 vs year ago

* Staff level down about 2,000 as costs restrained

* Hong Kong, Africa strong; Korea, Singapore weak

HONG KONG, Oct 29 (Reuters) - Profits at Asia-focused Standard Chartered Plc fell in the third quarter, hit by weakness in its troubled South Korea business, falling Asian currencies and a slowdown in investment banking.

The bank, which made more than 90 percent of its $6.9 billion 2012 profit in Asia, Africa and the Middle East, has cut about 2,000 jobs in the past year - its first such reductions in years - and it said income in the third quarter was down by a "low single digit" percentage.

Having written down the value of its Korean business by $1 billion in August, it expects a non-recurring tax-related cost in South Korea of $60 million for the full year, pulling down results for its consumer banking division.

The recent slump in India's rupee and the Indonesian rupiah, driven largely by expectations for U.S. monetary policy, also means profits there translate to lower reported dollar earnings.

"In the last year headcount has reduced by just under 2,000 ... we are managing attrition, we are tightening up in all areas of spend," Richard Meddings, finance director, told reporters on a conference call. The bank had 89,000 staff at the start of this year, triple a decade ago.

Meddings said the bank's operating profit was "slightly down" in the third quarter compared with a year ago.

The bank, describing the third quarter as "a resilient performance despite an uncertain macro environment", said its businesses in Hong Kong, Africa and corporate finance had been strong, but Korea and Singapore were weak and wealth management volatile.

Income and operating profit in the nine months to the end of September were still both up by a "low single digit" percent from a year earlier, the bank said. The lender, listed in both Hong Kong and London, does not publish third-quarter profit figures.

Meddings said concerns about a slowdown in Asian economies had been overdone, and he expects a pick up in growth rates in the markets the bank operates in next year.

But analysts said the bank faces a number of challenges that will test its record of 10 consecutive years of record profits.

"Standard Chartered faces a suite of near to medium term headwinds both for growing top line and bottom line," said Chirantan Barua, analyst at Bernstein.

Barua said the bank faces a trade-off between improving profitability and growth, and faces "a very competitive landscape" in its core Asian markets and rising bad loans.

Standard Chartered's London-based shares were down 1.4 percent at 15.12 pounds at 0820 GMT and its Hong Kong shares closed down 1.4 percent.

KOREAN WOES

A consistent performer throughout the financial crisis, Standard Chartered has been buffeted by the broader slowdown in key Asian markets such as Singapore and India. Its shares are down 4 percent this year, one of the worst performers among European banks.

It has had a hard time in South Korea, where a government scheme is allowing more forgiveness on debts, since acquiring First Bank in 2005 for $3.3 billion.

Excluding South Korea, where it is shrinking its business, StanChart's income and profits in the consumer banking division rose by a high single-digit percentage, the bank said.

Exposure to Asian currencies has been a further drag. Based on current exchange rates, it now expects depreciation of the rupee and rupiah to have a full-year impact of around $200 million on income and $70 million on profits.

The bank said its guidance stripped out the impact of an expected $260 million charge for a UK bank levy this year, the Korea goodwill writedown, adjustment for carrying its own credit, and a $340 million settlement with New York's regulator in the third quarter of last year over sanctions linked to past transactions in Iran.

It made a pretax profit of $3.3 billion for the six months to the end of June, hurt by the Korea writedown.