Pakistan banking: Aurangzeb brings discipline to HBL
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Pakistan banking: Aurangzeb brings discipline to HBL

The new chief executive of Pakistan’s biggest bank has wasted no time in overhauling it after it was kicked out of the US and fined $225 million in 2017.


It’s early February in Islamabad, and Muhammad Aurangzeb, chief executive of Habib Bank Ltd (HBL), is in town to lift the spirits of 600 or so of his bankers at HBL’s annual retail conference.

The event is part state-of-the-union, part queen’s speech, setting out where Pakistan’s biggest bank wants to go now that it has come through one of the more traumatic events in its recent history.

Gathered before Aurangzeb in the ballroom of the $300-a-night Serena Hotel – the best in Pakistan – are managers drawn from HBL’s 1,700-strong national branch network, summoned to the capital for the weekend.

This being Pakistan, the room is overwhelmingly male. For many, this Serena gathering is a first; the first time they have met the new boss Aurangzeb since he became chief executive just eight months earlier, and the first time Aurangzeb has articulated how he is changing this most storied of national financial institutions, which traces its origins to the father of independent Pakistan, Muhammad Ali Jinnah.

When he meets up with Asiamoney during a lunch break, he nods to the bank managers gathered at the conference.

Muhammad Aurangzeb_300

Muhammad Aurangzeb, HBL

“This is our backbone, the pipe right through which everything flows. This to me represents the core of the bank,” says Aurangzeb, a veteran of JPMorgan and ABN Amro.

The fact that HBL has chosen the sumptuous Serena for this important meeting is no accident. It’s a reminder that HBL’s majority shareholder is the Aga Khan’s fund for economic development (Akfed), which also owns the Serena Hotel group.

In Pakistan, the Aga Khan, spiritual leader of the influential Ismaili Shia community, is virtually a metaphor for good deeds.

Which is part of the message Aurangzeb wants to send to the assembled managers. Founded before Pakistan was even a nation, part of HBL’s charter as a money-making commercial bank is also to do good.

“I just wanted to put it all down in black and white,” Aurangzeb says. “I just feel that as the largest bank in the country, HBL should be at the forefront of capacity creation for Pakistan.”


But in recent years, HBL has spent quite a lot of time in the headlines for doing bad, and for being anything other than black and white.

In late 2017, US authorities unearthed a decade of alarming dealings at HBL’s New York branch, murky transactions that fell afoul of the strict post-9/11 anti-terror compliance rules. This series of events ultimately led to Aurangzeb’s appointment as chief executive in April 2018.

The long-running probe by the New York Department of Financial Services (DFS), the state banking regulator, resulted in HBL’s embarrassing expulsion from the US, marking the first time the DFS had ordered a bank to close; on top of that, HBL copped a $225 million fine for good measure.

The DFS said its investigation found recidivist compliance failures by HBL that were “serious, persistent and apparently affect the entire Habib banking enterprise.”

Initially, HBL struggled to accept it was in real strife in New York, where it had operated since 1978. The New York branch, which HBL described as small, had long been an important cog in HBL’s network, not least because HBL is the preferred domestic bank for many of Pakistan’s eight-million-strong diaspora, and the dollar is their preferred remittance currency.

In 2016 alone, HBL’s New York office is believed to have processed banking transactions worth more than $300 billion in total, generating a nice wedge of commission income at the very least for HBL.

An HBL press release issued in the middle of 2017, while the bank’s branch was under DFS investigation, noted the bank’s “sincere and extensive remediation measures over the last two years”, and described the New York authorities as “still not appreciating or recognizing the significant progress that HBL has made at its New York branch.”

The regulator was not impressed, and did not hold back in its condemnation of HBL. “The bank has repeatedly been given more than sufficient opportunity to correct its glaring deficiencies, yet it has failed to do so,” the DFS said.

It found that HBL had facilitated billions of dollars in transactions with a Saudi bank with reported links to al-Qaeda, and that HBL had deployed a so-called “good guy list” of clients of purported good reputation, through whom it could funnel unscreened transactions.

HBL was also accused of dealings with a sanctioned terrorist, an arms dealer and others on a US list of banned persons, and of carrying out wire-stripping, where the names of suspect clients or beneficiaries were omitted from transaction details, thus evading controls.

“The DFS will not stand by and let Habib Bank sneak out of the United States without holding it accountable for putting the integrity of the financial services industry and the safety of our nation at risk,” the regulator said in a statement, adding: “(HBL’s) New York branch has continued to fail to comply with a 2006 agreement with the predecessor agency to DFS that arose out of significant deficiencies identified within the bank’s compliance with economic sanctions laws and with its anti-money laundering compliance, including the Bank Secrecy Act. Violations of the 2006 agreement and New York Banking law have occurred almost every year since 2006.”


Bank insiders say HBL was very fortunate to have its original fine of $630 million whittled down eventually to $225 million.

In 2017, HBL promised that these legal problems would have “no material impact on HBL’s business outside of the United States.” But that could not have been further from the truth.

HBL’s profits plunged 76% in 2017, hit by the massive DFS fine. Within weeks of the New York DFS first making public its censure, Nauman Dar, the chief executive who had run HBL since 2012, was out. HBL announced Dar was taking early retirement, but it was clear to all along Karachi’s teeming II Chundrigar Road, Pakistan’s equivalent of Wall Street, that the authorities needed a scalp.

A quick, discreet search for his replacement followed, and by April 2018, Aurangzeb was in the job.

For Aurangzeb, it meant a return to Pakistan after nearly two decades abroad. He last worked in Pakistan in 2001 as country manager for Dutch bank ABN Amro, then spent eight years in Amsterdam (where he picked up workable Dutch) as ABN Amro’s global head of wholesale lending and commercial client business.

As the largest bank in the country, HBL should be at the forefront of capacity creation for Pakistan - Muhammad Aurangzeb, HBL

After Amsterdam, he joined JPMorgan as chief executive of its Asia-Pacific corporate bank, based in Singapore.

Aurangzeb hails from a prominent Lahori family and attended Lahore’s Aitchison College, famous for educating Pakistan’s establishment, including the current prime minister, Imran Khan, who was Aurangzeb’s senior.

Aurangzeb’s father, Chaudhry Muhammad Farooq, was twice Pakistan’s attorney-general, the first time for just 51 days in a pre-election caretaker government and four years later for two-and-a-half years under Nawaz Sharif until Sharif was ousted by General Pervez Musharraf in a military coup in 1999.

Given the family background in politics and law, does a political career beckon post-HBL?

Aurangzeb answers firmly: “No.”

He says that in joining HBL, there’s an element of his giving back to Pakistan.

“I also thought that if not now, then when? From a personal perspective, I was very clear: I was going to come back to the country.”

As he explains, though his family were prominent in Pakistan’s public life, they were not wealthy. In the 1980s, his brother won admission to Harvard’s law faculty. Around the same time, Aurangzeb was admitted to the Wharton business school in Pennsylvania. He felt his father could not afford two Ivy League educations so he applied for an Aga Khan scholarship to go to Philadelphia, and succeeded.

When he was approached last year about the HBL job, there was “a sense of duty, a sense of giving back,” says Aurangzeb, “that played at the back of my mind… that this institution is owned by Akfed, as a majority owner.”

While he felt indebted to the Aga Khan’s fund for his education, as a banker he realized this was a chance to turn HBL around.

“The main thing which appealed to me was that this is a bank which has gotten into this hiccup. And it’s a big hiccup, because it’s not a small amount that has been paid.”



In his first extensive interview since becoming chief executive, Aurangzeb is keen to address the proverbial elephant-in-the-room issue that got him the job, and his efforts to transform HBL’s compliance procedures.

“We have to comply with the highest international standards,” he insists.

“A lot of people say: ‘Because New York happened, therefore [we must have] KYC (know-your-customer), AML (anti-money laundering), sanctions, transaction monitoring, all of that stuff’. I said: ‘No, we need to do this because it’s the right thing to do for the business’,” he explains.

“To me, it’s not about winding down the New York branch. We are going to remain an important and responsible member of the US dollar clearing system. Of course, we want to stay on the right side of the regulators. But we have to get these foundations strong.”

That means sticking to the world’s best practices, he says. “We are well on our way because this year we are embedding all of that discipline as business as usual.”

But he says there has been some resistance from staff in Pakistan.

“My team said: ‘Why are we doing this? Because no one else is asking for that’,” he says.

Staff had feared business could be lost because of new rules and regulations that were seen as onerous.

“Our clients came to us and said: ‘Why are you asking? You’re the only bank asking, no one else is asking. Why should we bank (with HBL)?’ And I said to everyone, and this is June of last year: ‘I can assure you, it’s only a question of when rather than if. The entire industry will move in this direction’.”


Soon after taking over HBL, Aurangzeb flew to the US for a crucial visit that was part business, part diplomacy. He saw his key correspondent banks for dollar business, notably Citibank, Deutsche Bank and JPMorgan, to reassure them that HBL had changed its ways and that banking with HBL would not be a risk for them. And he also visited the very regulators that had sanctioned HBL in 2017.

“Yes, I did go and meet them,” he says. “I shared with them the overall transformation programme that the bank is going through. My message is, again and again, we are doing this because it’s the right thing to do for the business. And of course, a good by-product of that is that we will also stay out of trouble vis-à-vis the regulators.”

The meetings bore fruit.

“I went to see all our correspondents, Citi, Deutsche, JPMorgan in New York, and I said to them that the next time, at least do come to Karachi. Don’t hear from me what we’re doing in terms of all these disciplines, in terms of whole transformation programme, come and see for yourself.”

JPMorgan took up the invitation and came to Karachi in October last year to inspect HBL’s systems.

“We took them to the branches, to our processing centres, into our screening units,” Aurangzeb recalls. “We were talking about real-time transaction screening and they said: ‘Why are you doing it? Even we are not doing that’.”

I think as an industry, we took our eyes off the ball. Great earnings, great returns, everyone happy, except that we took our eyes off the ball in terms of the real sectors - Muhammad Aurangzeb, HBL

Aurangzeb says his eight years at JPMorgan were instructive when it came to transforming HBL in the wake of the New York crisis.

He cites JPMorgan’s handling of the London Whale scandal of 2012, when the bank absorbed more than $6 billion in trading losses resulting from gross slippages in procedure.

That episode broke not long after Aurangzeb joined JPMorgan, and he says he saw parallels between JPMorgan and HBL. Both banks had a complacency about them, he says, which ultimately led to system failures – JPMorgan because it had sailed through the global financial crisis and perhaps felt invulnerable, and HBL because of its domestic dominance – some say haughtiness – in Pakistan.

Aurangzeb recalls that JPMorgan’s chief executive Jamie Dimon had initially described the disastrous losses, which were attributed to a single trader known as the London Whale, as a “tempest in a teacup” but then got to work fixing it – and saving his job.

“He was quick to realize that something was not right,” recalls Aurangzeb. “Within a month, he had sacked the team. The moment he realized that this is toxic, that this is not working, he was so decisive.”

He says HBL did not wilfully err in New York.

“This was just that sense of complacency, and when you are dealing with international regulators, you need to be absolutely disciplined,” he says. “I had a little bit of insight as an outsider because JPMorgan was the largest correspondent for HBL.

“I think as an industry, we took our eyes off the ball. Great earnings, great returns, everyone happy, except that we took our eyes off the ball in terms of the real sectors. This can be turned around, it can be addressed. Yes, [the US fine] is a big number, which the board decided to pay in terms of the settlement amount. But this can be fixed.”

And he is optimistic that HBL has put the New York debacle behind it: “I was very clear that it’s going to be a quick turn-around, and then once that is in place, this bank can go to the next level.”

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