BNP Paribas SA posted the biggest advance in almost a year in Paris trading after saying a record $8.97 billion fine for breaking U.S. sanctions won’t force it to reduce its dividend or derail growth plans.
France’s largest bank rose as much as 4.4 percent, the largest intraday gain since July 4, 2013, and was 4.1 percent higher at 51.56 euros by 1:24 p.m. in Paris. The gain trimmed this year’s decline to 9 percent.
While the U.S. fine will result in a 5.8 billion-euro ($7.9 billion) charge in the second quarter, BNP said it intends to match last year’s dividend of 1.50 euros a share in 2014. The bank is also sticking with three-year growth targets and said it doesn’t plan to raise capital.
“The dividend is the true surprise,” said Jerome Forneris, who helps manage $9 billion at Banque Martin Maurel in Marseille.
BNP agreed to plead guilty in court documents yesterday to processing almost $9 billion in banned transactions involving Sudan, Iran and Cuba from 2004 to 2012. The company will be temporarily barred from handling some U.S. dollar transactions.
The settlement ends a five-year U.S. probe that in recent weeks drew top French government officials, including President Francois Hollande, to the bank’s defense and fanned commercial tensions between the two countries. Yesterday’s penalty dwarfs the combined $4.9 billion levied against 21 other banks for transactions tied to sanctioned countries since U.S. President Barack Obama took office.
BNP’s conduct was more egregious than previous sanctions cases because of the bank’s “concerted effort over a period of time to hide from federal and state government the extent” of the transactions, Manhattan District Attorney Cyrus Vance Jr. said in a phone interview.
The bank pleaded guilty yesterday in state court to Vance’s charges of falsifying business records and conspiracy. The lender is set to plead guilty to one count of conspiracy in federal court July 9.
“BNP Paribas went to elaborate lengths to conceal prohibited transactions, cover its tracks and deceive U.S. authorities,” U.S. Attorney General Eric Holder said yesterday in announcing the accord. “If sanctions are to have teeth, violations must be punished.”
The Bank of France said after the deal that BNP can withstand the fine and dollar-clearing ban. The firm said in a statement it will retain its licenses and expects “no impact” on its operational or business capabilities.
“The irony is we should be staggered by the size of the fine, but of course we’ve got used to it over the past few weeks,” said Christopher Wheeler, an analyst at Mediobanca SpA in London.
French government spokesman Stephane Le Foll said on i-Tele television that BNP’s legal case in the U.S. “has come to an end,” and declined to comment further on the matter.
BNP will use a six-month grace period before the start of its dollar clearing ban to set up alternate payment systems for clients to keep them from taking their business elsewhere. The ban on dollar transfers, also known as dollar clearing, will go into effect Jan. 1, giving the firm time to devise alternatives.
While the use of third parties to handle transactions will cost BNP Paribas millions of dollars, the Paris-based bank faces greater damage if it ends up losing clients. To avert that, it will seek to establish a system as seamless as possible so customers can’t tell that a part of their business is being handled by a different bank, according to Jean-Pierre Lambert, a Keefe, Bruyette & Woods Ltd. analyst in London.
Under the settlement with U.S. regulators and prosecutors, BNP agreed not to clear transactions from its oil-and-gas departments in Geneva, Paris, Singapore and Rome and by its trade-finance business in Milan for a year. The firm also agreed not to serve as a dollar-clearing correspondent bank for other lenders based in New York and London for two years, according to a statement yesterday from the New York State Department of Financial Services.
BNP Paribas is the second major European bank to plead guilty in a U.S. court in the past two months. Credit Suisse Group AG’s main bank subsidiary did so May 19, when it agreed to pay $2.6 billion, the largest penalty in an offshore tax case, after using secret Swiss accounts to help Americans hide money from the Internal Revenue Service. BNP Paribas’s punishment was the heftiest levied for violating U.S. sanctions.
The Federal Reserve said the bank’s $8.97 billion payment will resolve its own claims as well as investigations by the Justice Department, the Treasury’s Office of Foreign Assets Control, the New York District Attorney’s Office and the New York Department of Financial Services.
The investigation, which began in 2009 when an informant alerted Vance’s office, centered on the firm’s commodity-trade finance business in Paris and Geneva. About 30 executives who worked there have resigned, gone on leave, been fired or relocated since 2012, people familiar with the matter have said.
As part of the agreement, New York’s top banking regulator said it required BNP to refrain from employing people including Georges Chodron de Courcel, co-chief operating officer; Vivien Levy-Garboua, former head of compliance; Dominique Remy, former head of structured finance for the corporate investment bank; and Stephen Strombelline, head of ethics and compliance for North America.
“Certain employees deliberately circumvented U.S. rules and did not comply with General Management’s decisions that prohibited this business in the countries concerned as from 2007,” Bonnafe, 52, told the bank’s consumer-banking clients in a letter posted on its website today. “There was also lack of vigilance and responsiveness” and BNP has “obviously learned lessons,” Bonnafe said.
The majority of the illegal payments were made on behalf of sanctioned entities in Sudan, which came under a U.S. trade embargo for abusing human rights and aiding terrorists, the Justice Department said. BNP Paribas, using “satellite banks” to disguise the transactions, processed about $6.4 billion through the U.S. from July 2006 to June 2007 on behalf of Sudanese entities, according to the statement.
The U.S. said such transactions included instructions to BNP Paribas from the sanctioned country, saying “due to the U.S. embargo on Sudan, please debit our U.S. dollar account without mentioning our name in your payment order.”
Holder also said that BNP compliance officers wrote to their colleagues to remind them that some Sudanese banks they were doing business with “play a pivotal part” in support of the Sudanese government, which “has hosted Osama bin Laden.”
BNP subverted U.S. sanctions against Sudan “by acting in essence as the central bank of Sudan,” Assistant District Attorney Edward Starishevsky said during a hearing in New York state court yesterday. “This conduct, this conspiracy, was known and condoned at the highest levels of BNP.”