Standard Chartered <2888.HK> 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 2.6 percent to 1,830 pence by 0900 GMT. Its Hong Kong shares were up 2.8 percent.

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 percent of our staff are in China and India and these markets are very competitive for talent, Meddings told reporters on a conference call. We will be hiring significant numbers (next year), but also we will undoubtedly see some attrition, he added.

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 percent to about 85,000.

REGULATORY DEMANDS

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, Meddings said.

He said 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 $3.12 billion 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.

StanChart 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.

Standard Chartered raised $5.3 billion from a rights issue in October, which it said would bolster its finances ahead of new capital rules and provide firepower to take advantage of new opportunities.

The bank's London-listed shares have rallied 23 percent so far this year, massively outperforming a 20 percent fall by the broader European bank sector <.SX7P>.

The stock hit a record high of 1,975p last month, valuing the bank at 45 billion pounds and leaving its shares trading at a lofty premium to peers. (Editing by Chris Lewis and Jane Merriman)

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