Standard Chartered’s swift settlement with the New York regulator over allegedly breaking US anti-money laundering sanctions with Iran to the tune of “at least $250 billion” may be a first and important step in rebuilding its once hallowed reputation, but the agreement does raise some important questions.
The first question is one around factual accuracy. A week ago, StanChart had robustly rebuffed the New York State Department of Financial Services claims it had “schemed” to bypass US anti-money-laundering sanctions and process about 60,000 transactions worth $250 billion for Iranian clients.
Coming out fighting on August 7, StanChart said in a statement that it “strongly rejects the position or the portrayal of facts as set out in the order issued by the DFS” and that “it does not believe the order issued by the DFS presents a full and accurate picture of the facts”.
A day later, on August 8, chief executive Peter Sands said during a press conference call that of 150 million transactions the bank had reviewed, there were only 300 with a value of around $14 million that may have breached US anti-money laundering sanctions with Iran.
Given that “the parties have agreed that the conduct at issue involved transactions of at least $250 billion”, according to the DFS’ settlement statement on Tuesday, it seems that the regulator’s claims were closer to the truth.
Indeed, while $250 billion is a staggering sum in itself, perhaps of most concern to shareholders in StanChart, its customers and clients, is the bank’s own analysis of the value of transactions, the nature of its impassioned defense, and how quickly it has apparently climbed down.
The second question is how wide open StanChart is now following the settlement to other US regulators.
In a note from Credit Suisse’s equity research team, they argued: “This leaves other regulators to settle, but takes the major tail risk off the table, i.e. the risk of the NY banking license to be revoked and Standard Chartered’s ability to clear USD payments questioned.”
They added: “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 and will not require the company to issue any additional equity.”
Credit Suisse has neutral recommendation on StanChart’s stock.
Ian Gordon, an analyst at Investec, which has a buy recommendation on StanChart’s stock, wrote in a note on Wednesday that while $340 million was disproportionate, the “settlement protects shareholder and customer interests against the regulatory assault”.
“To be clear, Standard Chartered still has ongoing discussions with the mainstream US authorities which will, we expect, lead to the imposition of an incremental (but eminently manageable) penalty in due course,” Gordon wrote.
He added: “Evidence suggests that all other US agencies have conducted themselves in a much more measured manner over the past 2.5 years, recognizing the broad legitimacy of Standard Chartered’s procedures for administering U-turn payments in compliance with the US authorities’ own guidelines.”
StanChart has taken an important step in resolving this damaging situation, but in agreeing that the case involved transactions of at least $250 billion, and not $14 million as it protested, the bank could have done more damage than good.