After being accused of money laundering activities by the New York State Department of Financial Services, headed by Benjamin Lawsky, Standard & Chartered agreed yesterday to pay $340m (£271m) to settle the accusations. The stock rose today but they are still below its pre-crisis level as some investors expect there to be potential spillover connotations.
On August 3, the New York regulator accused the British bank of being involved in money laundering transactions with Iran totaling some $250bn. Upstart Benjamin Lawsky, the regulator fiercely attacked Standard Chartered saying it is a “rogue institution” and contributing to criminal activities including drug trafficking, money laundering, and even terrorism. The statement came as a surprise to the bank since it was in the middle of negotiations with the US relevant authorities about the case.
The strong words used by Benjamin Lawsky angered many in the both the UK and the US as this kind of case is usually settled between the bank and the regulator in a relatively private manner to avoid unnecessary costs for shareholders and other interested parties. Standard & Chartered shares, which closed at 1567p on August 3, just before this case hit the newspapers, quickly dropped to 1092p over the next sessions as investors were concerned with the possibility of the bank losing its license to process transactions in US Dollars. Although very unlikely, it was a possibility that many put on the table at first, a proposition that led to a sharp sell-off and that this blog took advantage of in taking a reactive long position.
During last week the odds shortened that this case would be settled with just a fine applied to Standard & Chartered and so keeping its coveted US license intact. British MPs repudiated the regulators attitude and even Osborne and Cameron go involved to calm a potential political crisis between the US and the UK.
Although this settlement ends negotiations with the New York regulator, there are additional entities that may wish a piece of the cake now that Standard & Chartered agreed to pay the hefty fine. Unfortunately, in the US, there is always another regulator around the corner that will no doubt try to get their piece of the cake!
While other regulators may try to extract additional funds from the bank, given the political issues behind this case, we don’t think they have much margin to impose disruptive fines. Standard & Chartered may end paying $600m at most, but nothing that could touch the bank’s future prospects. We think this case is mostly over and Standard & Chartered shares are now set to recover their value and maybe continue the uptrend that led to a one year high near 2000p, last year.
Filipe R Costa