Latest blunder hits StanChart where it most hurts

August 20, 2014

By George Hay

The author is a Reuters Breakingviews columnist. The opinions expressed are his own. 

Standard Chartered’s latest blunder hits the UK bank where it hurts most. New York State’s Department of Financial Services has slapped a $300 million fine on the emerging markets-focused lender for compliance lapses. It reinforces the disturbing impression that StanChart’s top brass aren’t on top of things.

StanChart has a poor track record with DFS Superintendent Benjamin Lawsky. In 2012 he fined the bank $340 million for its role in obscuring that dollar transactions cleared through New York originated from Iran. Two years on, an independent monitor appointed by Lawsky has ruled that StanChart didn’t properly implement anti-money laundering measures on transactions by small business clients from the United Arab Emirates and Hong Kong.

On the face of it, StanChart’s failings don’t look so heinous. The problem is limited to a few hundred small businesses out of tens of thousands in Hong Kong. The local regulator says the issue doesn’t cause significant supervisory concerns. The scale of the fine has to be seen in the light of recent inflation in U.S. penalties, culminating in the $9 billion charge imposed on BNP Paribas. Restrictions on clearing dollar transactions by Hong Kong and UAE clients affect less than 1 percent of group revenue, while the fine knocks just 9 basis points off StanChart’s core Tier 1 capital ratio, according to JPMorgan.

But the latest thwack is still a problem. Post-2012, StanChart needed a zero-tolerance approach to future compliance lapses. The fact that another has arisen will further concern those investors who see Chief Executive Peter Sands as more of a statesman than an operator, and Chairman John Peace – who also chairs fashion group Burberry – as having too much on his plate.

That in turn will add to concerns about the lender getting back to anything like its heyday, when it enjoyed an unbroken decade of growth. StanChart warned on 2014 profits in June; its share price has fallen 17 percent in the last year. Lawsky’s latest intervention alone shouldn’t mean defenestration for any of the bank’s top team. But it will only add to investor interest in a workable succession plan.

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