As Standard Chartered plunges, taint for London banks spreads
鈥檚 share price, which lost close to a fifth of its value in early trading Tuesday after news of U.S. regulators鈥� allegations that it helped Iran launder up to $250 billion broke, may not be the only victim of the accusations.
London鈥檚 reputation as a global financial center has come under attack repeatedly in recent months, as one after another of its most famous financial institutions had to admit to underhand dealings and accept fines.
听础蝉听,听听(RBS),听and听听reported their various troubles, Standard Chartered, with its emerging markets focus and solemn promise to 鈥渂alance its ambition with its conscience鈥� in a recent marketing campaign, looked like a beacon of fair dealing and profitability.
听The damning statement from the New York Department of Financial Services (NY DFS) claimed that Standard Chartered had illegally earned 鈥渉undreds of millions of dollars in fees鈥� for hiding transactions from Iran worth close to $250 billion since 2001. Worries that this could lead, not just to a hefty fine, but even to its U.S. banking licence being revoked, sent its share price into freefall in Hong Kong and London.
In comparison, when Barclays announced its fine over manipulation of the London interbank offered rate (Libor -听听for an explanation), its share price dropped by around 16 percent.
听Standard Chartered has vigorously denied the allegations and said the statement does not present 鈥渁 full and accurate picture of the facts.鈥� Just $14 million worth of transactions are suspect, the bank said.
听Standard Chartered is facing a fine of up to $1.5 billion, according to Cormac Leach, UK bank analyst at Liberium, who pointed out that HSBC had recently made a $700 million provision for fines related to 鈥渨eak anti-money laundering controls,鈥� rather than the deliberate fraud which the NY DFS has alleged against Standard Chartered.
听Nomura downgraded the bank from buy to neutral. Banking analysts at the Japanese bank wrote in a research note: 鈥淥n fundamental equity analysis, Standard Chartered remains our preferred UK bank, but in face of this unquantifiable legal risk, we would rather remain cautious until some of this uncertainty is mitigated.鈥�
听There was indignation in the London market at supposed high-handedness from the U.S regulator.
Sean Corrigan, chief investment officer of Diapason Commodities Management, spoke of 鈥淎merican legal buccaneering鈥� from the NY DFS.
鈥淭he American authorities never go after an American bank, they always bully somebody abroad. U.S. banks are closer to Washington and the political action committees there,鈥� he told CNBC鈥檚 鈥溾�� Tuesday.
鈥淭he American judicial system is so politicized. This is usually some guy climbing the greasy pole of politics, and it鈥檚 easier for them to pick on a foreign institution that does business in America than on an American institution.鈥�
鈥淒iplomatically, there is no counterweight to bear against the American political might. That鈥檚 not to say the American system is immune from oversight, but these high-profile cases always seem to go outside the country,鈥� he added.
, part of U.S. banking giant Wells Fargo, paid a hefty fine in 2010 for helping to move money for Mexican drug smugglers.
鈥淚 fear that we have another Eliot Spitzer on our hands who鈥檚 looking for a bit of fame and glory,鈥� Chris Wheeler, banking analyst at Mediobanca, told CNBC. He recommended buying Standard Chartered on the dip in its share price.
鈥淭his is one of the most solid management teams in the sector. There are always risks working in developing markets. I am concerned that we鈥檙e in a situation where it鈥檚 something that is going to damage the bank and could just be down to individuals.鈥�
Another argument is that there are more likely to be faults in London purely because of its size and importance. The city has grown in importance in recent years following the introduction of the听听rules in the U.S., and partly because of its geographical importance and location in the time zone between the U.S. and fast-growing markets in Asia.
鈥淟ondon is the global financial center of banking, and therefore if there are issues in the banking sector, they are more likely to be in London,鈥� Mark Boleat, chairman of the policy and resources committee of the City of London, told CNBC.com.
鈥淭here is nothing special to London in what鈥檚 happened in recent months, issues like the Libor scandal seem to have affected different financial centers. London is still a very strong financial center but there are issues which need to be dealt with at the moment.鈥�
