Standard Chartered said costs are rising quickly as it fights to hire and retain staff in its hot Asian markets, taking the gloss off record income and profits.
Finance director Richard Meddings said Standard Chartered was likely to make "significant hirings" next year after adding about 7,000 staff this year, although he said competition for bankers was driving up costs. The increased costs and a slight slowdown in growth in the fourth quarter compared with the third quarter dragged the bank's London-listed shares down.
"The statement highlights the extent to which Asia growth brings with it increased investment spend and margin pressure," said Mike Trippitt, analyst at Oriel Securities.
Income in the second half of 2010 was expected to clock in at levels similar to the first six months of the year, the bank said in a trading update before the end of the year.
Cost growth is outpacing income growth, however – by a "significant" amount in its wholesale banking arm – as the bank fights to hire and retain talent and higher regulation costs bite.
"About 30 per cent of our staff are in China and India and these markets are very competitive for talent," Mr Meddings said. "We will be hiring significant numbers (next year), but also we will undoubtedly see some attrition," he added.
Mr Meddings said he would aim to grow costs at the same pace as income next year after a step-up in investment in infrastructure and hiring this year, which increased the bank's headcount by nearly 10 per cent to about 85,000.
The cost of meeting tougher regulatory requirements had also stepped up in the second half. "There's a much more intensive regulatory demand on the bank and the industry across geographies," Mr Meddings said.
He added the bank, which is based in London but makes over four-fifths of its profit in Asia, had no plans to leave London after it warned in August that an increasing regulatory burden was making it a less attractive base. The bank said margins this year were set to be lower than 2009 due to pressure on asset margins across a number of different countries.
Standard Chartered reported a first-half profit of $3.12bn (1.97bn) as bad debts more than halved and its key Asian markets performed better than those in the West.
The fall in loan impairments has extended into the second half of this year. The bank said it expected bad loans to be significantly lower in 2010 compared with the previous year.
Standard Chartered has been expanding aggressively in the wholesale and consumer banking areas, snagging several high- profile deals including as lead underwriter for McDonald's Corp's landmark 200 million yuan bond in Hong Kong earlier this year.