I explore and explain the undercurrents in markets and economics that drive daily headlines.

StanChart's Profit Surge Masks Tariff-Driven Headwinds

Henry RiversFriday, May 2, 2025 3:50 am ET

3min read

Standard Chartered reported a robust 10% year-over-year jump in Q1 2025 pretax profit to $2.1 billion, handily beating both its prior-year results and analyst expectations. The numbers were a clear win for CEO Bill Winters and his team, yet the report’s subtext was equally notable: the bank’s warnings about tariff-related risks and their cascading effects on global credit quality.

The results underscore a broader tension in the banking sector: how to capitalize on growth opportunities while navigating the minefield of escalating trade tensions. For StanChart, which has long bet on cross-border flows and emerging markets, the tariff issue has become a double-edged sword.

The Profit Beat: A Mixed Picture

StanChart’s $2.1 billion profit was driven by strong performances in its fee-based businesses. Wealth Solutions revenue surged 28% year-over-year, while Global Markets and Global Banking units grew by 17% and 14%, respectively. Operating income rose 7% to $5.39 billion, and underlying EPS jumped 19% to 62.7 cents.

But the gains came amid headwinds. Net interest income fell 5% quarter-over-quarter due to “challenging interest rate and economic conditions,” a nod to the drag from prolonged low-rate environments and slowing global trade.

Tariffs and Credit: The Hidden Cost

The bank’s credit impairment charges rose 24% year-over-year to $219 million, with $23 million directly tied to “heightened uncertainty around trade tariffs.” This figure is critical because it reflects the tangible financial toll of trade tensions on corporate borrowers.

Analysts like Daniel Tabbush of the Tabbush Report highlighted that Hong Kong’s credit charges now account for over 40% of StanChart’s global total—a sharp rise given that Hong Kong loans represent just 25% of its portfolio. This imbalance suggests that regional borrowers in Asia, a core market for StanChart, are feeling the pinch of trade volatility.

The Strategy: Diversification as Defense

StanChart’s response to tariff risks hinges on its cross-border network and geographic diversification. The bank emphasized its limited exposure to U.S. tariffs, with U.S.-related corporate income making up just 7% of its CIB revenue in 2024. Instead, it’s doubling down on markets like Asia, Africa, and the Middle East.

Since early 2024, the bank has opened 10 regional treasury centers and six international wealth centers. This strategy aims to lock in affluent clients and supply chain finance opportunities, areas less directly exposed to trade wars.

Yet the efficacy of this approach remains unproven. While the bank’s diversified model has insulated it from some U.S.-China tariff spillovers, the broader slowdown in global trade volume—and the resulting credit stress—could still undercut its growth.

Analyst Take: Growth at Risk, but Credit Stable?

Jefferies analysts argued that tariffs are “ultimately a growth issue, not a credit one,” noting that StanChart’s shares rose 3.3% post-earnings to a five-week high. This suggests investors are willing to overlook near-term tariff risks if the bank’s long-term strategy holds.

However, the data tells a more nuanced story. StanChart’s CET1 ratio—a key capital metric—remains within its 13-14% target range, but management’s decision to hold off on new buybacks or dividend hikes underscores caution. The bank’s 5-7% CAGR target for operating income through 2026 now faces added uncertainty.

Conclusion: A Strategic Gamble on Diversification

StanChart’s Q1 results are a paradox of strength and vulnerability. The bank’s cross-border model and fee-based businesses are delivering growth, but the tariff-driven credit risks in its core markets cannot be ignored.

The key question for investors is whether the bank’s diversification is sufficient to offset the drag from trade tensions. With Hong Kong credit charges now dominating its impairment costs and global trade volumes stagnating, StanChart’s growth trajectory hinges on two variables:

Tariff De-escalation: A resolution to U.S.-China trade disputes or broader geopolitical stability would alleviate credit pressures and boost cross-border flows.
Emerging Markets Resilience: If Asia and Africa continue to grow despite trade headwinds, StanChart’s network could outperform.

For now, the stock’s 3.3% pop post-earnings reflects a bet on the latter. But with credit costs rising and net interest income weakening, investors are right to remain cautious. StanChart’s strategy is sound, but it’s a high-stakes gamble in an uncertain world.

The bottom line: StanChart’s profit beat is a victory, but the tariff storm clouds are still gathering.

Disclaimer: the above is a summary showing certain market information. AInvest is not responsible for any data errors, omissions or other information that may be displayed incorrectly as the data is derived from a third party source. Communications displaying market prices, data and other information available in this post are meant for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of any security. Please do your own research when investing. All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss in a down market.