Standard & Chartered shares look to end week up 25% from its lows

Earlier this week, investors in Standard & Chartered were spooked by comments made by the New York banking regulator in which they used unusually forceful language, stating thatStandard Chartered is a “rogue” institution that makes money out of drug traffickers, terrorists, and other criminals. According to Benjamin Lawsky, head of the New York State Department of Financial Services, the bank conducted illegal transactions with Iran, including with two state-owned banks and the central bank, amounting to some £160 billion over the last several years. The tone used by Benjamin Lawsky was emphatic, authoritarian and even aggressive through the use of strong words against the British bank.

Investors were concerned that such sharp rhetoric could result in brand destruction, affecting the bank’s reputation and, in a worst case scenario, potentiall in the bank losing its license to conduct operations in US Dollars. With $190 billion in daily US dollar business, a loss of its US license would be catastrophic to Standard & Chartered.

As we stated in our latest article about the case, Standard and Chartered was the third London-based bank to be put under scrutiny by US authorities in just a couple of months. It is very likely that the UK government could step in to put a brake on this and, we believe that it would be very unlikely that Standard Chartered would actually lose its license in the US – although in this game, never say never – black swans do happen… Weighing up the risks, we recommended a short-term trade last Tuesday, early in the morning.

Following the latest US jawboning at British interests, a growing number of voices have questioned Lawsky methods. While Standard Chartered revealed that there had been ongoing negotiations about the case, they went further and related that they believe the transactions in question that did not comply with the so called U-turn rules involved just £9 million. Several UK MPs have spoken out about the case including the enfant terrible of British politics – Boris Johnson. The view in the UK is that there is some kind of which-hunt conducted by US authorities and that is potentially damaging to the City of London’s reputation. The latest news out is that George Osborne has spoken with Tim Geithner, the US Treasury secretary – three times in just two days about this case, signallng that the UK government won’t take this incident lightly.

In the meantime, while the main authorities from both sides of the Atlantic engage with each others, investors have done a volte face and jumped back into the shares in the measured belief that Standard Chartered will end just paying a fine that will ultimately not even scratch its current and future prospects. From a low seen last Tuesday at 1092p, Standard Chartered recovered almost 25%, closing at 1363p yesterday. Looking at Friday close, just before all this happened, there is still potential for the shares to rise since they were quoted at 1567p.

Standard Chartered 1 year chart