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StanChart’s shares rise on $340m settlement

Howard Mustoe London

Standard Chartered rose as much as 5.1 percent in London yesterday after the bank settled a US money-laundering probe for $340 million (R2.77 billion) the day before it was due to appear at a hearing to defend its right to operate in New York.

The stock was up 4.7 percent to £14.35 (R183.33) at 12.05pm for a market value of about £34bn. The stock is still about 8 percent below its closing price on August 3, the last day of trading before the probe was announced.

Benjamin Lawsky, the head of the New York Department of Financial Services, accused Standard Chartered of helping Iran launder about $250bn in violation of federal laws, threatening to remove the London-based bank’s licence to operate in the state.

That would have hurt Standard Chartered’s ability to process dollar payments for clients in Asia and reduced earnings by about 40 percent, said Chirantan Barua, an analyst at Sanford Bernstein Research in London.

“Crucially, the settlement eliminates the risk of Standard Chartered losing its banking and clearing licence,” Shailesh Raikundlia, an analyst at Espirito Santo Investment Bank in London, wrote in a note to clients. That “would have significantly impaired their wholesale banking operations, especially transaction banking and trade finance”.

The bank still faces federal probes over allegations it helped Iran funnel money through the US. Regulators, including the US Treasury, the Federal Reserve, the Justice Department and the Manhattan district attorney declined attempts at a global settlement, a person familiar with the matter said yesterday.

September would be the earliest that such a global deal was possible, said the person, who declined to be identified because the matter was private.

The bank could pay as much as $1bn in fines as it settled with other regulators, according to Simon Morris, a regulatory lawyer at CMS Cameron McKenna in London.

“The implication for Standard Chartered is they have a truce on one battle but four more to fight” with other regulators, he said in an interview on Bloomberg Television.

A person familiar with the New York probe said Lawsky had sought as much as $700m to settle the investigation. The cost of settling with all the regulators might be about $700m, Cormac Leech, an analyst at Liberum Capital wrote in a note to investors.

“The willingness of [the New York regulator] to accept a $340m settlement sits oddly with its classification, a week earlier, of Standard Chartered as a ‘rogue institution’ at risk of New York licence revocation,” wrote Leech, who has a buy rating on the stock. “Standard Chartered is now likely to suffer minimal reputational damage with minimal risk of management resignations.”

The quick resolution of the probe was in the best interests of shareholders, clients and employees, chief executive Peter Sands said in an internal memo yesterday.

“Our past review did identify mistakes, for which we have apologised,” Sands told employees, without elaborating on the specific errors, according to the document.

“There are many reasons why firms settle such agreements,” Sands said. “We have sought to act in the best interests of our shareholders, clients, customers and staff.”

The lender was in talks with the other agencies, Sands, who flew to New York to lead the negotiations, said in the note.

Melissa Cheah, a Singapore-based spokeswoman for the lender, confirmed that Sands had sent a memo to staff.

“We would expect the other regulators to settle in due course, and the fines may be material, but we think the aggregate cost will be below $1bn,” analysts led by Amit Goel at Credit Suisse Group wrote in a note to clients.

Standard Chartered is the latest bank to be fined over issues related to money laundering.

ING Groep, the biggest Dutch financial services company, agreed in June to pay $619m to settle US charges it falsified financial records to bypass sanctions on countries including Cuba and Iran.

HSBC Holdings, Europe’s largest bank, made a $700m provision last month for US fines after a Senate committee found the bank gave terrorists, drug cartels and criminals access to the US financial system. That sum might increase, chief executive Stuart Gulliver said.

“Standard Chartered has acted with pragmatism and integrity in the face of extreme provocation,” Ian Gordon, a London-based analyst at Investec, wrote in a note to clients yesterday. – Bloomberg

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