StanChart in soup on Iranian dealings

REUTERS

HONG/KONG/LONDON: Standard Chartered Plc's shares fell as much as 20 per cent today after New York's top bank regulator threatened to remove its state banking licence, saying the British lender hid $250 billion in transactions tied to Iran.

The New York State Department of Financial Services said yesterday that Standard Chartered "schemed" with the Iranian government and hid from law enforcement officials some 60,000 secret transactions to generate hundreds of millions of dollars in fees over nearly 10 years.

The British bank, which the regulator called a "rogue institution" also exposed the US banking system to terrorists, drug traffickers and corrupt states, the DFS said.

London-based Standard Chartered was surprised by the statement, even though it has been in talks with US regulators over the matter for years. Its shares were 18.4 per cent lower at 12.00 pounds by 0820 GMT today.

The shares had already fallen 6.2 per cent yesterday, sliding on the close just as the news emerged.

The regulator's move is a savage blow to Standard Chartered, which has been one of the banks least tarnished during the financial crisis thanks to its focus on Asia and other emerging markets and a conservative capital and liquidity approach.

A top 40 investor in the British bank said he did not expect it to be a lasting problem given the bank's robust defence, but added: "Given that the shares are not especially cheap, particularly in relative terms, it may be the shares remain in the doldrums for a while now that their blameless reputation has suffered a knock."

Standard Chartered said the bank "does not believe the order issued by the DFS presents a full and accurate picture of the facts."

The loss of a New York banking licence would be a devastating blow for a foreign bank, effectively cutting off direct access to the US bank market. Standard Chartered processes $190 billion every day for global clients, the New York bank regulator said.

In an unusual look inside a bank, the New York regulator described how Standard Chartered officials debated whether to continue Iranian dealings.

In October 2006, the top official for business in the Americas, whom the regulator did not name, warned in a "panicked message" that the Iranian dealings could cause "catastrophic reputational damage" and "serious criminal liability." A top executive in London shot back: "Who are you to tell us, the rest of the world, that we're not going to deal with Iranians." The reply showed "contempt for US banking regulations," the regulator said.

Standard Chartered said it shared with US agencies an analysis that demonstrated it "acted to comply, and overwhelmingly did comply" with US regulations. Standard Chartered put the total value of Iran-related transactions that did not follow regulations at less than $14 million.

"The group was surprised to receive the order from the DFS, given that discussions with the agencies were ongoing," Standard Chartered said. "We intend to discuss these matters with DFS and to contest their position."