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StanChart warns on regulatory costs after record profit

An exterior view of the Standard Chartered headquarters is seen in London August 7, 2012. REUTERS/Olivia Harris
An exterior view of the Standard Chartered headquarters is seen in London August 7, 2012. REUTERS/Olivia Harris

By Steve Slater and Matt Scuffham

LONDON (Reuters) - Standard Chartered <2888.HK> notched up a tenth successive rise in annual profit, with a 1 percent gain that was capped by the bank's big fine for breaking U.S. sanctions on Iran and rising regulatory costs.

London-listed Standard Chartered, which has benefited from Asia's boom through the last decade, said new regulations including tougher liquidity and capital rules and a UK bank tax were costing it "well north" of $500 million a year, and could be near $800 million.

Many banks have said extra global regulations, brought in to make them safer after the 2008 financial crisis, are hurting profitability and could restrict their lending. But few have quantified the impact on their bottom line.

A European Union proposal to cap bankers' bonuses at double their salary was also a worry, the bank said.

"We are concerned about it because we are a global bank and 97 percent of our staff are outside the EU and we're concerned about our ability to be competitive in attracting and retaining talent," Chief Executive Peter Sands said.

Asked if it could prompt the bank to leave London, he said it was "too early to draw conclusions on what action we would take as we don't know what we are dealing with."

Standard Chartered said it had cut its 2012 bonus pool by 7 percent from a year before to $1.43 billion, after it was fined $667 million by U.S. regulators for breaching sanctions related to Iran and three other countries.

Sands said his bonus would fall 10 percent to $3.15 million.

DECADE OF HIRING

The Iran-related fine was a rare blip after a decade of growth and few problems for Standard Chartered. It was accused of moving millions of dollars through the American banking system on behalf of customers in sanctioned countries.

The bank reported pretax profit of $6.9 billion for 2012, up from $6.8 billion in 2011 but just short of an average forecast from analysts of $7 billion. It said it had started the year well and had "a firm grip" on risk, costs and investment.

Its shares rose 2.8 percent by 0246 GMT, outperforming a 1.9 percent rise in the European bank index <.SX7P>.

"Given the events of the past year it's quite a feat to deliver a good set of boring results," said Simon Maughan, analyst at Olivetree Securities. "It has put itself back on the steady outperformer track ... they are back in their comfort zone and get a premium valuation for that."

Standard Chartered, led by former McKinsey consultant Sands for more than six years, added 2,200 staff in 2012 and has said it could expand by a similar amount this year, although it plans to keep any cost increase below its rise in income.

Its return on equity improved to 12.8 percent last year from 12.2 percent, but is still short of its medium-term target of 15 percent.

Regulation costs included a $174 million UK bank levy, which it expects to rise to near $290 million this year. Holding extra capital and stricter rules on how risk-weightings are calculated cost $200 million or more.

The bank is most concerned about tougher rules on liquidity, which Britain has introduced far before overseas rivals. "We like being liquid, but the quantum of liquidity we now hold and also the restrictions over the nature of what we can invest it in, we would estimate as approaching $300 million of cost," Finance Director Richard Meddings said.

The bank's income in Malaysia, China and Indonesia grew by more than 10 percent last year and it rose 10 percent in Hong Kong, its biggest market, mirroring the strong performance there by its rival HSBC on Monday.

Profit in India, one of its biggest markets, fell 16 percent as the economy slowed and its currency weakened.

In Africa, profit jumped 23 percent to $771 million and the bank said it is setting up a full subsidiary in Angola, the first international bank to do so.

Angola is Africa's largest oil producer after Nigeria and increasingly a target for international firms given its mineral wealth and fast growth.

(Additional reporting by David Dolan; Editing by Erica Billingham)

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