Post date: Aug 07, 2012 1:22:59 PM
LONDON, ENGLAND, UK (AUGUST 7, 2012) (REUTERS) - The market value of Standard Chartered Plc had tumbled $15 billion by early Tuesday (August 7) after New York's bank regulator threatened to tear up its state banking licence for hiding $250 billion in transactions tied to Iran.
Standard Chartered shares fall by as much as 20 percent after New York's top bank regulator threatens to remove its state banking licence, saying the British lender hid transactions tied to Iran.
The New York State Department of Financial Services (DFS) said on Monday (August 6) that Standard Chartered was a "rogue institution" that "schemed" with the Iranian government, which is subject to U.S. sanctions over its nuclear programme, and hid 60,000 secret transactions to generate hundreds of millions of dollars in fees over nearly 10 years.
Shares in the Asia-focused bank were down 21 percent at 11.50 pounds by 0930 GMT, their lowest in three years, taking their losses to 27 percent since the news surfaced just before Monday's close.
The bank, which has been in talks with U.S. authorities for years over the matter, had exposed the U.S. banking system to terrorists, drug traffickers and corrupt states, the DFS said.
Standard Chartered said the bank "does not believe the order issued by the DFS presents a full and accurate picture of the facts".
Investment analysts said there were was a risk the bank could face further penalties.
"The real challenges of course are that other regulators will step into the fray and say, well, actually you have broken all sorts of global rules on money laundering. At the moment I think the market's view is that there is far more likely to be a fine, although, it is very clear that the two sides are so far apart in terms of determining the scale of the challenge that we have a lot further to go. Indeed, it is unlikely we will see any real clarity until the 15th of August when Standard Chartered meets with the New York authority," said James Bevan, a CCLA Investment Management analyst.
The regulator's move is a savage blow to Standard Chartered, 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.
Analysts were doubtful on the prospects for a quick recovery.
"Well, I think there are two separate issues here. There is what are Standard Chartered going to do as a bank and their results last week were extremely impressive and I think most people that came out believed that the management statement was confident, forward looking and optimistic and that gave considerable cheer to the optimists. The challenge, on the other hand, relating to the share price, is it very difficult to see early recovery, not least because the Standard Chartered share price was valuing the company on about one-and-a-half-times book value, as against, say, half-times book value for the UK clearers such as Barclays. Therefore, the valuation of Standard Chartered was rich and I think that is what's going to come under tension in the days ahead," said Bevan.
The loss of a New York banking licence would be a devastating blow for a foreign bank, effectively cutting off direct access to the U.S. bank market. Standard Chartered processes $190 billion every day for global clients, the New York bank regulator said.
Standard Chartered is the third British bank to be ensnared in U.S. law enforcement probes this summer. Barclays Plc agreed to pay $453 million to settle U.S. and UK probes that it rigged a global lending benchmark in June.
A month later, a U.S. Senate panel issued a scathing report that criticised HSBC Holding Plc's efforts to police suspect transactions, including Mexican drug traffickers.
Standard Chartered said it shared with U.S. agencies an analysis that demonstrated it "acted to comply, and overwhelmingly did comply" with U.S. regulations.
Standard Chartered put the total value of Iran-related transactions that did not follow regulations at less than $14 million, based on its review of the issue. It said 99.9 percent of its transactions relating to Iran had complied with a U.S. framework.
The figure alleged by the New York regulator would cover the equivalent of 71 percent of the $350 billion total Iranian oil export revenues for the seven years of 2001-2007, according to OPEC data.
"The group was ... surprised to receive the order from the DFS, given that discussions with the agencies were ongoing," Standard Chartered said. "We intend to discuss these matters with the DFS and to contest their position."
The bank has to appear before the DFS on Aug. 15.
Standard Chartered 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 $1.8 billion. HSBC currently is under investigation by U.S. law enforcement, according to bank regulatory filings.
The New York regulator, headed by former prosecutor Benjamin Lawsky, ordered Standard Chartered to explain why the bank should not lose its state licence and the ability to process dollar transactions.
Lawsky also ordered the bank to bring in an outside consultant to monitor its transactions.
"Standard Chartered Bank operated as a rogue institution," Lawsky said in the order.
Lawsky's investigation is unusual because probes into banks' transactions tied to Iran have been primarily led by the district attorney's office in Manhattan and the U.S. Justice Department.