Standard Chartered Plc (STAN) Chief Executive Officer Peter Sands hit back at a New York regulator’s claims the bank broke U.S. sanctions, and said he saw “no grounds” for revoking the lender’s license.
Standard Chartered has tumbled about 16 percent in London trading this week after New York regulator Benjamin Lawsky threatened to strip the London-based bank of its license to operate in the state, alleging it processed $250 billion of deals with Iranian banks subject to sanctions.
“We reject the position and portrayal of facts by the Department of Financial Services,” Sands said on a conference call with reporters yesterday, his first public comments since the regulator’s report on Aug. 6. “It would be disproportionate and wholly inconsistent with the actions of other U.S. authorities in other sanctions matters” to revoke the bank’s New York license, he said.
The dispute is becoming increasingly political. Mayor of London Boris Johnson yesterday accused New York of seeking to damage its biggest competitor as a financial center, while Bank of England Governor Mervyn King criticized the regulator for failing to co-ordinate with its counterparts.
The stock rallied 3.7 percent to 1,364.5 pence by 3:07 p.m. in London, after gaining 7.1 percent yesterday. The shares fell 16.4 percent on Aug. 7.
The loss of its New York license would significantly damage Standard Chartered’s corporate banking model and could result in a 40 percent drop in earnings, said Chirantan Barua, an analyst at Sanford Bernstein Research in London. Barua has had an underperform rating on the stock since at least March, according to data compiled by Bloomberg.
Sands, 50, said the probe has been “very damaging” to the British lender’s brand, and denied that there was anything wrong with the bank’s culture. He added that none of the transactions reviewed by the bank were linked to terrorist organizations.
“There are lots of matters in that order that frankly either we don’t recognize or we don’t understand or are factually inaccurate,” Sands said, referring to the report.
The lender has consulted lawyers and been advised that it may have a case for claiming reputational damage, the Financial Times reported today, citing two people it didn’t identify. Standard Chartered is aware of the sensitivity involved in taking a militant stance toward its regulator, the paper said.
The bank might be asked to pay as much as $700 million to resolve money-laundering allegations filed by Lawsky, New York’s banking superintendent, after the Department of Financial Services grew impatient with inaction by federal regulators, a person familiar with the case said.
Lawsky tried unsuccessfully a few months ago to get U.S. regulators to punish the bank for conduct involving disguised Iranian money transfers, said the person, who asked not to be identified because the matter is confidential. The transfers have been under investigation by federal agencies for more than two years, according to Lawsky’s statement.
“The order we received from the DFS came as a complete surprise,” Sands said on the call. “The surprise was in the manner of the announcement and that the DFS made an announcement on its own and without giving us prior notice. The resolution of such matters normally proceeds through a coordinated approach by the different agencies.”
King yesterday criticized Lawsky’s order, saying at a press conference that U.K. authorities would “ask that various regulatory bodies that are investigating a particular case try to work together.” Johnson used a column for the London-based Spectator magazine to attack the regulator.
Motivated by Jealousy
“You can’t help wondering whether all this beating up of British banks and bankers is starting to shade into protectionism,” he wrote. “And you can’t help thinking it might actually be at least partly motivated by jealousy of London’s financial sector -- a simple desire to knock a rival center.”
There was also friction with the Federal Reserve and U.S. Treasury Department, the Financial Times reported, citing another person it didn’t identify. The two, and the Justice Department and Manhattan district attorney’s office, are probing the bank’s links to Iran, it said.
“The federal authorities have been quieter because they understand they have to work this out at international level, where Lawsky has gone ahead,” Syed Kamall, a U.K. Conservative member of the European Parliament and member of its Economic and Finance Committee, said. “And it’s a nice story, Iran-bashing, at the moment, given the current concerns internationally.”
“This is a case about Iran, money laundering, and national security,” Lawsky said. “We will continue to work closely with our law enforcement partners, both federal and state, in this effort. No bank, big or small, foreign or domestic, is above the law.”
The investigation is focusing on so-called U-turn transactions, which could allow an Iranian bank to access the U.S. banking system indirectly through a third-party bank.
Standard Chartered hired an external consultant to probe about 150 million payment transactions conducted between 2001 and 2007, Sands said.
Transactions had to be initiated offshore by banks that were neither U.S. nor Iranian and only passed through the U.S. financial system on the way to other non-Iranian, non U.S. banks. Standard Chartered broke the rules by stripping wire transfer orders involving its New York branch of any reference to the involvement of Iranian banks, the regulator said.
Fewer than 300 of the transactions, amounting to about $14 million, weren’t valid U-turns, Sands said yesterday.
“That is clearly wrong and we’re sorry that those mistakes occurred,” Sands said. “There was no systematic attempt to circumvent sanctions.”
The regulator in its report quoted Standard Chartered’s then executive director of risk as asking “who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”
Sands said the quote was based on an individual’s recollection of a meeting rather than an e-mail or document. Finance Director Richard Meddings was executive director of risk at the time, he said.
“No-one at that meeting claims to have made that statement, so we don’t believe the quote is accurate,” he said.
A settlement of $700 million would match the amount that HSBC Holdings Plc (HSBA) set aside last month after a Senate committee found the bank gave terrorists, drug cartels and criminals access to the U.S. financial system.
“Despite widespread distaste for the New York State Department’s conduct, a settlement may yet be seen as expedient,” said Ian Gordon, an analyst at Investec Plc (INVP) in London with a buy rating on the stock. “Any settlement on broadly the above terms would, relative to alternatives, be taken with considerable relief by the markets.”
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