London - The market value of Standard Chartered
Plc tumbled $16bn on Tuesday after New York's bank regulator
threatened to tear up its state banking licence for allegedly hiding
$250bn in transactions tied to Iran.
The New York State
Department of Financial Services (DFS) slammed Standard Chartered as a
"rogue institution" that "schemed" with the Iranian government, which is
subject to US 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
23.5% at £11.25 by 13:20, their lowest in three years,
taking their losses to 30% since the news surfaced just before
"Even the so-called 'safe' banks like StanChart
and HSBC seem to be crumbling, with their reputation in tatters. No one,
it seems, is immune," said one institutional investor, who asked not to
"Some of the language used is very disturbing. Of
course, it could be that the Americans are exaggerating, but somehow
that doesn't seem to be the case here," the investor said.
bank, which has been in talks with US authorities since early 2010
over the matter, had exposed the US banking system to terrorists, drug
traffickers and corrupt states, the DFS said.
The New York
regulator described how officials at Standard Chartered, one of the
banks least tarnished during the financial crisis thanks to its focus on
emerging markets and a conservative approach to capital and liquidity,
had debated whether to continue Iranian dealings.
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
A group executive director in London shot back,
according to a New York branch officer: "You f---ing Americans. Who are
you to tell us, the rest of the world, that we're not going to deal with
The reply showed "obvious contempt for US banking regulations", the regulator said.
At that time the bank had five executive directors: Peter Sands, now
chief executive; Richard Meddings, now finance director; Mervyn Davies, a
UK Labour Party peer; Kai Nargolwala, who was poached by Credit Suisse
and left the Swiss bank last year; and Mike DeNoma, who resigned as CEO
of Chinatrust Financial in August.
Standard Chartered's Americas CEO was Ray Ferguson, who is now its Singapore CEO.
None of the people could be reached for comment or else declined to comment.
Standard Chartered said the bank "does not believe the order issued by
the DFS presents a full and accurate picture of the facts".
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. Standard Chartered processes $190bn every day for global
clients, the New York bank regulator said.
Standard Chartered is
the third British bank to be ensnared in US law enforcement probes
this summer. Barclays Plc agreed to pay $453m to settle US and
UK probes that it rigged a global lending benchmark in June.
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.
said it shared with US agencies an analysis that demonstrated it
"acted to comply, and overwhelmingly did comply" with US regulations.
Standard Chartered put the total value of Iran-related transactions
that did not follow regulations at less than $14m, based on its
review of the issue, in stark contrast to the DFS's $250bn
The United States imposed economic sanctions on Iran in
1979, but until November 2008 US banks could process some
transactions for Iranian banks or individuals provided they were
intiated offshore by non-Iranian foreign banks and are on the way to
other non-Iranian foreign banks, known as "U-turns".
Chartered said the DFS's interpretation of the U-turn exemption "is
incorrect as a matter of law". It said 99.9% of its transactions
relating to Iran had complied with a US framework.
alleged by the New York regulator would cover the equivalent of 71% of the $350bn 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 August 15.
"Some people were walking around under the illusion that Standard
Chartered was the world's first riskless bank, and it's not. We've
discovered that Standard Chartered is a mortal bank - as they all are,"
said Gareth Hunt, financials analyst at Canaccord Genuity, who rates the
stock a "sell".
Mike Trippitt, analyst at Oriel, cut his rating
to "reduce" from "buy". "The tone and language of the report is quite
shocking, but it was equally a very firm rebuttal from Standard
Chartered, to say it was acting lawfully and measuring what they think
was outside the rules.
"You can paint a range of scenarios, from storm in a teacup to catastrophe, but it's hard to work out right now," he said.
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 and ING - have agreed to
fines and settlements totalling $1.8bn. HSBC currently is under
investigation by US law enforcement, according to bank regulatory
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.
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