Standard Chartered shares were halted to regulate volatility in very early trade on Thursday after the Asia-focused bank released a disappointing Q3 trading update.

Shares of Standard Chartered were down around 10% at the time of writing on Thursday.

Following Barclays and Lloyds’ updates this week, Standard Chartered said net interest margins (NIMs) fell in the last quarter. This is a trend across London-listed banks and marks the end of the uplift enjoyed by the higher interest rate environment.

However, Standard Chartered is facing a perfect storm of contracting NIMs, rising operational costs, and increased provisions for bad debts.

Operational expenses rose to $2.87bn in the third quarter, an 8% increase on a constant currency basis compared to the same period last year. At the same time, operating income rose only 6% to $4.52bn.

Costs rising faster than income are never taken unfavourably by markets. Compounding the concern, the bank said net interest margins slipped to 1.67% in Q3, down 4 basis points from the prior quarter.

Standard Chartered’s exposure to China saw the bank increase provisions for bad debts related to the Chinese property sector to $292m.

Disruption in the Chinese economy meant the bank’s banking activities experienced lower profitability as group profit for the period sank 87% to $139m.

It was another marginally higher day for the FTSE 100 on Wednesday as investors digested corporate updates from Lloyds, Reckitt Benckiser, and a plethora of US tech companies.

The FTSE 100 was up 15 points at 7,393 at the time of writing after recovering early losses as the index undulated between gains and losses.

“Despite gains in the US and Asia overnight on some solid US corporate earnings and news of Beijing launching a big stimulus package, the FTSE 100 was modestly lower on Wednesday morning,” said AJ Bell head of financial analysis Danni Hewson.

“Microsoft and Alphabet both delivered better than expected earnings although there was some divergence in the reaction, with the former higher and the latter lower on their respective numbers. Microsoft’s head start in AI seems to be paying off, while Alphabet appears to be in catch-up mode on both this and cloud computing.

Microsoft was up 4% in the premarket while Alphabet dipped 5%.

In terms of London-listed corporate updates, Lloyds was up 2% after reversing early losses as profits increased in the third quarter – despite net interest margins falling.

Reckitt Benckiser was among the top fallers after announcing a 4.1% reduction in volumes in the latest quarter and a 4% drop in reported revenues due to adverse currency swings. Reckitt Benckiser shares were 4.8% lower shortly after midday in London.

Ocado shares were the worst performer on Wednesday as the food distribution technology broke to the lowest levels since rumours of a takeover by Amazon surfaced.

Although there was a sense of calm in UK stocks on Wednesday, Russ Mould warned concerns around the Middle East and central bank action could rock the boat before long.

“As tensions remain heightened in the Middle East, US Federal Reserve chair Jerome Powell is set to deliver an address in Washington tonight which will be closely monitored by twitchy markets,” Mould said.

According to Bloomberg, Chinese real estate developer Country Garden has defaulted after failing to pay the interest on a note by the end of the 30-day grace period, which ended last week.

Not paying debt within the grace period constitutes “an event of default”, Bloomberg reports.

Last month, the company warned of its inability to pay off debt. It was always likely that the company might default, joining a growing list of indebted Chinese developers.

Based on the latest disclosure from the company, Country Garden had approximately $15 billion in debt maturing by June 2024. The company’s overall liabilities amounted to around 1.36 trillion yuan (equivalent to $190 billion).

On Wednesday, Reckitt Benckiser, a company known for its products such as Vannish, Air Wick, Dettol, and Strespsils, released the Q3 report, highlighting significant revenue growth difficulties, especially in Hygiene. 

The net revenue witnessed a positive like-for-like revenue growth of 3.4%, driven by a robust and widespread expansion of 6.7% across the hygiene and health segments combined.

However, the impact of adverse currency swings meant that reported revenue fell 3.6%. Group volumes slipped 4.1% in the third quarter.

Reckitt Benckiser shares were down 5% at the time of writing.

Within the nutrition sector, there was a revenue drop of 11.9%.

Hygiene achieved a noteworthy net revenue growth of 8.1% on a like-for-like basis. This substantial expansion was driven by across-the-board growth in all primary categories, propelled by double-digit increases in both Finish and Vanish.

While Reckitt’s Nutrition Products continues to maintain its leadership position in the US market, it also successfully navigated past a supply issue experienced by a competitor in the previous year.

Health experienced a like-for-like net revenue growth of 5.4%. The growth was primarily fueled by the OTC (over-the-counter) and intimate wellness portfolios, while Dettol and VMS (vitamins, minerals, and supplements) remained generally stable.

Danni Hewson, the head of financial analysis at AJ Bell, said in a comment to UK Investor Magazine that “to be fair, nutrition is suffering in comparison with the same period last year when a US competitor faced temporary supply issues with its infant formula, but the specialist in health and hygiene branded goods saw a pretty significant drop in volumes across the board, compensated for by rising prices.”

Danni Hewson added that “There may be concern in the market that this reflects a shift in consumer behavior with people switching out of the likes of Nurofen and Finish dishwasher tablets into own-brand alternatives. While for drinks, snacks, and other food items people might be willing to push the boat out and still buy their favourite brands, can the same hold true for cleaning products and over-the-counter medicine? If not, then Reckitt risks losing any reputation for pricing power.”

On Tuesday, Microsoft Corp. released Q1 data, which shows that revenue was up 13% (up 12% in constant currency). Microsoft shares rose 4.4% in after-hours trading.

Operating income reached $26.9 billion, reflecting a 25% increase (or 24% in constant currency). Net income amounted to $22.3 billion, a 27% rise (or 26% in constant currency).

According to Amy Hood, executive vice president and chief financial officer at Microsoft, “consistent execution by our sales teams and partners drove a strong start to the fiscal year with Microsoft Cloud revenue of $31.8 billion, up 24% (up 23% in constant currency) year-over-year”.

In the last quarter, Microsoft’s Intelligent Cloud division, home to the Azure cloud computing platform, generated $24.3 billion in revenue, surpassing analysts’ expected $23.49 billion, according to LSEG data.

Azure’s revenue increased by 29%, surpassing the 26.2% Visible Alpha estimate.

According to Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, “Microsoft’s come out the gate swinging this quarter. A resilient set of numbers highlights how well it’s placed to capitalise on the world’s growing need for cloud solutions. So few companies can afford a seat at this table that Microsoft’s able to dig in. With that said, growth is expected to moderate, despite being resilient in the scheme of things.”

“End customers are likely going to trim spending while they ride out the economic storm, meaning blockbuster tech budgets are on the chopping block. The potential for Microsoft to do exceptionally well with generative AI remains, but the exact moment in time that this technology will be adopted at large will depend on when corporate spending picks up pace, and confidence needs to improve before that can happen,” Sophie Lund-Yates concluded.

Lloyds shares were down in early trade on Wednesday after the UK bank said net interest margin – a key measure of operational profitability – fell in the last quarter.

Lloyds shares were down 2.4% in early trade, breaking through the significant 40p mark, before rebounding.

Net interest margin (NIM) fell to 3.08% in the third quarter, a drop of 6 basis points compared to the previous quarter. The drop in NIM was a result of challenges in mortgage pricing and competitive influences on deposit interest rates.

However, unlike Barclays yesterday, Lloyds maintained their full-year net interest margin guidance at ‘greater than 310 basis points.’

Customer deposits were steady in the period as increased savings and wealth deposits offset a reduction in current account balances.

“Lloyds’ retail deposit base has put in a steady performance over the quarter as it managed to keep hold of savers looking for better rates. As we’ve seen over recent quarters consumers are conscious of the rates they’re receiving on current account deposits and are off in search of higher yields. Lloyds did see a 3% dip in current account values and has seen over £9bn in outflows year to date, but was able to make up for the loss this quarter with inflows into its savings products. These are less profitable products, and net interest margin was a touch lower than expected,” said Matt Britzman, equity analyst at Hargreaves Lansdown.

There were bright spots in Lloyds’ update. Lloyds were relatively upbeat on the macro outlook to the extent they set aside less than expected for bad debts. Lloyds only recorded £187m in impairment charges in the third quarter compared with £668m in the prior quarter.

Lower than expected impairment charges saw Lloyds’ profit rise to £2bn in the third quarter.

“Impairments came in less than expected, as Lloyds continues to see macroeconomic conditions improving. Consumers facing higher living costs may not be feeling any release of pressure, but they’re managing finances well and remain remarkably resilient, with arrears levels stable,” Britzman said.

Although Lloyds has yet to see any major deterioration in the health of its loan book, there were undertones of caution in the decision to hold off bringing forward any share buybacks.

Britzman added “there was chatter that Lloyds may lean on its strong balance sheet to push forward full-year buyback plans. But prudence is on the cards, and investors will have to wait until full-year results more any indication on the size of planned distributions – given the levels of excess capital floating about, there’s potential for surprise on the upside.”