Standard Chartered's profit hit by $1 billion Korean writedown

By Steve Slater and Carmel Crimmins

LONDON (Reuters) - Asia-focused bank Standard Chartered took a $1 billion hit on the value of its troubled Korean business on Tuesday, dragging earnings down 16 percent and warning of a slow turnaround in its most difficult market.

Standard Chartered has had a hard time in South Korea since buying First Bank in 2005 for $3.3 billion, its largest ever acquisition.

It had a long dispute with staff and the profitability for all banks there has been hit by tougher regulations. Bad debts have also risen after an overhaul of personal debt restructuring processes, allowing more forgiveness on long-term loans.

The UK-listed bank, which makes more than 90 percent of its profit in Asia, Africa and the Middle East, said excluding its Korean woes it would still meet consensus forecasts for a full-year operating profit of $7.9 billion, up 15 percent from last year, and buoying its share price.

Like larger rival HSBC , Standard Chartered has seen a slowdown in emerging markets, which has dented its stock price in recent months and tempered growth expectations.

Revenues have risen by an average 15 percent a year over the last decade, slowing to 8 percent last year. The bank expects to fall short of its 10 percent target again this year.

Standard Chartered reported a pretax profit of $3.3 billion for the six months to the end of June, down from $3.9 billion a year ago due to the writedown in Korea.

The bank had flagged a possible writedown in June.

The bank posted a $861 million pretax loss in Korea for the first half, after a two-thirds jump in loan losses and provisions for souring debt.

It still has about $700 million of goodwill remaining on the acquisition and Chief Executive Peter Sands said the bank would accelerate the restructuring of the business, including the sale of some assets.

"We cannot escape the realities of the Korean context, but we are determined to improve productivity and return on capital," Sands said. "It's not a quick fix."

He estimated return on equity in the Korean banking industry had slumped from 18 percent in 2005 to about 4 percent now.

Standard Chartered's shares were up 3.7 percent at 15.80 pounds by 5:30 pm, their highest level for 11 weeks and the biggest gainer in a flat Stoxx 600 European banking index <.SX7P>.

Its shares have been one of the weakest bank stocks in Europe over the past year, shedding nearly three percent of value, compared to a jump of one third in the European index.

HEADWINDS

A consistent performer throughout the financial crisis, Standard Chartered has been buffeted by a slowdown in key markets such as Singapore, Korea and mainland China, where Sands warned there would be stresses and strains as the government there switches from economic stimulus towards reform measures.

Echoing similar comments from HSBC, Sands said the deceleration in Chinese growth meant a more sustainable growth path in the future and he trumpeted Standard Chartered's wide geographic spread as a shield against weak spots.

"While some of our businesses have been slowed by economic turbulence or regulatory or policy interference, our diversity means we can take challenges in our stride and still deliver growth," he said.

While pretax profit rose in Hong Kong and India, it fell in Singapore, Malaysia, Indonesia and mainland China. Loan impairments jumped 27 percent.

"Standard Chartered faces a suite of near to medium term headwinds both for growing top line and bottom line," said Chirantan Barua, banking analyst at Bernstein. "The next couple of years are going to be decisive."

(Editing by Greg Mahlich and Erica Billingham)