/ 7 August 2012

Standard Chartered takes a knock in market value

Standard Chartered's market value has slumped almost a quarter after US regulators alleged it hid $250-billion in transactions with Iran.
Standard Chartered's market value has slumped almost a quarter after US regulators alleged it hid $250-billion in transactions with Iran.

The emerging markets-focused lender – until now seen as a darling of the financial sector – rejected US claims made Monday that it was a "rogue bank" for allegedly hiding the equivalent of €201-billion with Iranian banks.

However, investors ran for cover, sending Standard's shares crashing 24.76% to 1 106 pence in early Tuesday trading, wiping more than £6-billion from its value.

The dire news comes amid a torrid time for British banks – just weeks after US lawmakers accused HSBC of failing to apply anti-laundering rules, thereby benefiting Iran, terrorists and drug dealers.

The notorious Libor rate-rigging affair has rocked Britain's Barclays bank and threatens to spread to financial institutions worldwide.

Lenders in Britain have also been plagued in recent months by vast penalties for mis-sold financial products, especially payment protection insurance.

"Standard Chartered had hitherto emerged relatively unscathed from the problems afflicting the rest of the sector, so this unpleasant surprise is all the more worrying for investors," said dealer Rupert Osborne at IG Index.

State support
London-based Standard Chartered survived the global financial crisis without state support, unlike many rivals, has enjoyed record profits in recent years and appeared immune to other problems that have blighted the financial sector.

"Bad news for banks, once again as the daggers are out for Standard Chartered with US regulators flexing their muscles," said Capital Spreads boss Simon Denham.

"The stock is being absolutely smashed … as investors fear that they might have actually been doing something illegal for years."

In the latest US move against foreign banks dealing with Iran, the New York state department of financial services (DFS) threatened London-based Standard Chartered with fines and the suspension of its licence.

Regulators accused the group of hiding more than $250-billion in illegal transactions for almost a decade, alleging it systematically disguised foreign exchange deals with Iran that potentially opened the US banking system to terrorists and criminals.

Standard Chartered said it "strongly rejects … the portrayal of facts as set out" by the DFS.

Competitor disarray
Just one week ago, Standard Chartered unveiled record first-half net profits of $2.81-billion, and spoke of the "disarray of our competitors," in reference to the various issues that have hit rival lenders.

"On the basis of there usually being no smoke without fire, these are likely to be testing times for the bank ahead of the appearance before the regulators next week," said analyst Richard Hunter at Hargreaves Lansdown Stockbrokers.

The devastating blow for Standard comes after a US Senate report in July accused HSBC of concealing more than $16-billion in sensitive transactions with Iran and Mexican drug lords over 2001-2007.

Last week HSBC set a provision of $700-million to cover possible fines related to the transactions and warned the overall cost could be "significantly higher".

Analysts expressed deep concern over the level of fines and the potential loss of Standard Chartered's New York banking licence.

Denham added that investors were extremely anxious over damage to the group's reputation – despite its focus on emerging markets in Asia and the Middle East.

"The market is attempting to assess the longer term reputational damage caused as well as the possibility that the bank may lose its New York banking licence – something any global bank would want to keep no matter how much of their business is generated outside the world's biggest economy." – AFP