Wednesday August 8, 2012
StanChart shares plunge as NY regulator says US$250bil Iranian deals hidden
HONG KONG: Standard Chartered Plc's (StanChart) market value tumbled US$16bil yesterday after New York's top bank regulator threatened to remove its state banking licence, saying the British lender hid US$250bil in transactions tied to Iran.
The New York State Department of Financial Services (DFS) said on Monday that StanChart “schemed” with the Iranian government and hid from law enforcement officials some 60,000 secret transactions to generate hundreds of millions of dollars in fees over nearly 10 years.
The British bank, which the regulator called a “rogue institution” also exposed the US banking system to terrorists, drug traffickers and corrupt states, the DFS said.
London-based StanChart was surprised by the statement, even though it has been in talks with US regulators over the matter for years. Its shares were 18.4% lower at £12 by 0820 GMT yesterday.
The shares had already fallen 6.2% on Monday, sliding on the close just as the news emerged.
The regulator's move is a savage blow to StanChart, which has been one of the banks least tarnished during the financial crisis thanks to its focus on Asia and other emerging markets and a conservative capital and liquidity approach.
A top 40 investor in the British bank said he did not expect it to be a lasting problem given the bank's robust defence, but added: “Given that the shares are not especially cheap, particularly in relative terms, it may be the shares remain in the doldrums for a while now that their blameless reputation has suffered a knock.”
StanChart said the bank “does not believe the order issued by the DFS presents a full and accurate picture of the facts.”
The loss of a New York banking licence would be a devastating blow for a foreign bank, effectively cutting off direct access to the US bank market. StanChart processed US$190bil every day for global clients, the New York bank regulator said.
In an unusual look inside a bank, the New York regulator described how StanChart officials debated whether to continue Iranian dealings.
In October 2006, the top official for business in the Americas, whom the regulator did not name, warned in a “panicked message” that the Iranian dealings could cause “catastrophic reputational damage” and “serious criminal liability.”
A top executive in London shot back: “You f---ing Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians.” The reply showed “obvious contempt for US banking regulations,” the regulator said.
StanChart is the third British bank to be ensnared in US law enforcement probes this summer. Barclays Plc agreed to pay US$453mil to settle US and UK probes that it rigged a global lending benchmark in June.
A month later, a US Senate panel issued a scathing report that criticised HSBC Holding Plc's efforts to police suspect transactions, including Mexican drug traffickers.
StanChart said it shared with US agencies an analysis that demonstrated it “acted to comply, and overwhelmingly did comply” with US regulations.
StanChart put the total value of Iran-related transactions that did not follow regulations at less than US$14mil.
“The group was therefore surprised to receive the order from the DFS, given that discussions with the agencies were ongoing,” StanChart said. “We intend to discuss these matters with the DFS and to contest their position.”
StanChart, a financier in emerging markets, is the sixth foreign bank since 2008 to be implicated in dealings with sanctioned countries such as Iran in investigations led by federal and New York law enforcement officials.
Four banks Barclays, Lloyds, Credit Suisse Group and ING Bank have agreed to fines and settlements totalling US$1.8bil. HSBC currently is under investigation by US law enforcement, according to bank regulatory filings. Reuters