Shares fell 16% in early London trade, after falling 16% in Hong Kong. After 2 hours trading some 18% had been wiped from its share value as uncertainty over the future of the financial institution mounted [Google Finance].
Standard Chartered are accused by New York regulators of hiding 60,000 transactions with Iran, totaling at least $250 billion [£161 billion], an offense which puts them in danger of losing their New York license and the ability to clear funds through the US.
The New York State Department of Financial Services released a document [PDF] Monday in which it said the UK-based bank had laundered billions of dollars over nearly a decade.
The DFS claims the bank hid transactions for "Iranian financial institutions" that were subject to US economic sanctions .
In part of its statement the DFS cited the "obvious contempt for US banking regulations" displayed by Standard Chartered by quoting an SCB Group Executive Director as saying "You fucking Americans. Who are you to tell us, the rest of the world, that we're not
going to deal with Iranians."
It was a point picked up by many financial websites and publications. "As if we needed more proof, Standard Chartered has demonstrated again the folly of investing in our largest banks," Reuters' James Saft wrote.
He went on to suggest that investing in the biggest banks was "like burying landmines in your own front yard while blindfolded".
The bank has firmly denied the allegations, saying that it "strongly rejects the position or portrayal of facts as set out in the order" issued by the regulator, but that it was "conducting a review" and "discussing" matters with US authorities. Furthermore the banks insists that only $14 million of transactions were non-compliant with US banking regulations [Standard Chartered].
The allegations will do nothing to improve confidence in the banking sector. After the PPI scandal, criticism of bank charges and high bonuses paid to bank bosses, the libor fixing scandal, as well as computer glitches that have left thousands either out of pocket or unable to access their money, the reputation of banks is at an all time low.
No bank has escaped the criticism. Most high street banks in the UK were lambasted for their selling of PPI, and payouts continue as those who took out the often unnecessary insurance make claims.
The libor fixing scandal has seen massive fines imposed on Barclays with others drawn into to the melee.
In July HSBC was heavily criticised for failing to prevent money laundering by Mexican drug gangs . And only a month earlier ING agreed to pay $619 million to settle US government allegations that it violated US sanctions against Cuba and Iran [BBC].
[BBC / BBC / CNN / Telegraph / Bloomberg / FT]
Wider implications
Standard Chartered Bank is a British bank headquartered in London with operations in more than seventy countries. It operates a network of over 1,700 branches and outlets (including subsidiaries, associates and joint ventures) and employs 73,000 people.
Despite its British base, Standard Chartered has few customers in the UK, and 90% of its profits come from Asia, Africa, and the Middle East. It has operations in some seventy countries and a network of over 1,700 branches and outlets, including subsidiaries, associates and joint ventures.
With a particular hold in Asia there are concerns of fallout across the region. A spokesman for the Hong Kong Monetary Authority, the Chinese territory's banking regulator, said it was "reviewing the order concerning the Standard Chartered Bank issued by the New York State Department of Financial Services, to see if there are issues that have relevant implications for Hong Kong".
Since Standard Chartered specialises in financing in Asia, Africa and the Middle East, it does not operate in domestic US banking as such. However it does make a profit in the region as a result of it facilitating cross border trade for customers that have operations in both the US and emerging markets. In fact, the New York bank regulator calculates that Standard Chartered processes $190bn every day for global clients.
The key hit to the bank would be the damage to its reputation and status, which is likely to affect its business with Asian clients.
With concerns expressed this week that a slowdown in the Chinese economy could prove more more damaging than the EU financial crisis, instability in the banking sector which helps fund businesses in the region will not help [CNN / CNN comment]
It is not the first scandal to hit Standard Chartered in recent months. A banker working for the financial institution was detained by police in China in March this year as part of an investigation into a wealthy client who allegedly stole money from a state-owned bank [FT].
Standard Chartered confirmed the arrest but said the bank itself was not under investigation. Nonetheless such incidents only raise concerns not only for Standard Chartered but also for other banks trying to do business in Asia, and China in particular where foreign banks are already struggling to gain a foothold in China [FT]
tvnewswatch, London, UK.
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