Standard Chartered shares slumped in both Hong Kong and London on Tuesday after New York’s top bank regulator said the British bank worked with Iran to hide $250 billion in transactions, violating U.S. anti-money laundering laws, but analysts say that the case will only have limited impact on the bank.
The New York State Department of Financial Services on Monday threatened to strip Standard Chartered of its banking license in the state. It said the bank was a "rogue institution" that had "schemed" with the Iranian government and hid 60,000 secret transactions that generated hundreds of millions of dollars in fees.
The stock had slumped more than 6 percent in London on Monday after news broke on the accusations. It fell a further 17 percent in early morning trade on Tuesday. Meanwhile, the stock in Hong Kong closed 14.8 percent lower.
While the case could “haunt the company” for some time, the impact on its stock will be “limited,” according to Kathy Lien, Managing Director of BK Asset Management.
“Yes, it creates a really big black mark on their name but at the end of the day, what’s probably going to happen is they’re going to get slapped on their wrist, they’re going to be fined, they’re going to get greater scrutiny as a result of this. But at the end of the day, Standard Chartered is going to survive this,” Lien told CNBC Asia’s “Squawk Box.”
Aberdeen Asset Management, which owns about 6 percent of Standard Chartered, said investors will have to give the bank a chance to respond and believes that the bank should be able to uphold its “very clean” reputation. The company expects certain risk management and oversight standards from the bank and the bank also tries to uphold those standards, Hugh Young, Managing Director of Aberdeen Asset Management Asia told CNBC.
“It’s a strong bank,” Young said. “It has avoided up until yesterday all the nightmare areas that the other banks have strayed into. It had and still has, unless we are prejudging, a very clean reputation as one of the world's leading banks. And certainly do we recognize the rogue bank that they're accused of being? No, we don't.”
Japanese brokerage Nomura however cut its rating on Standard Chartered's stock from 'Buy' to 'Neutral' on Tuesday after the news.
Standard Chartered had allegedly moved money through its New York branch on behalf of Iranian clients, including the Central Bank of Iran and state-owned Bank Saderat and Bank Melli, that were subject to U.S. sanctions, according to the department of financial services. The bank processes $190 billion every day for global clients, it added, and its activities with Iran exposed the U.S. banking system to terrorists, drug traffickers and corrupt states.
It did this through so-called “U-Turn” transactions, referring to money moved for Iranian clients among banks in Britain and Middle East and cleared through Standard Chartered's New York branch, but which neither started nor ended in Iran.
Standard Chartered in a statement on Monday rejected the department’s accusations, adding that it did not present “a full and accurate picture of the facts.”
“The analysis, that the Group shared with all the US agencies, demonstrates that throughout the period the Group acted to comply, and overwhelmingly did comply, with US sanctions and the regulations relating to U-turn payments. As we have disclosed to the authorities, well over 99.9 percent of the transactions relating to Iran complied with the U-turn regulations. The total value of transactions which did not follow the U-turn was under $14 million.”
The bank’s “reviews of its Iranian payments also did not identify a single payment on behalf of any party that was designated at the time by the US Government as a terrorist entity or organization…Standard Chartered ceased all new business with Iranian customers in any currency over five years ago,” it said.
Standard Chartered, a financier in emerging markets, is the sixth foreign bank since 2008 to be implicated in dealings with sanctioned countries such as Iran in investigations led by federal and New York law-enforcement officials, according to Reuters.
Its British counterpart HSBC was also accused last month by a U.S. Senate investigation of violating anti-money laundering rules.
Justin Harper, Market Strategist of IG Markets in Singapore, said he does not expect any impact on Standard Chartered's reputation to last.
The bank's name won't be dented, "not if it can clear its name, which I expect it will be able to do," he told CNBC. "Mud gets thrown all the time at banks, and it very rarely sticks for long. These type of accusations are becoming more common and banks will need to be prepared to defend themselves if they have done nothing wrong."
— By CNBC’s Jean Chua.