BNP Paribusted

By Jordan Fraade
July 1, 2014

Yesterday, BNP Paribas and U.S. prosecutors finally settled after months of negotiations over the bank’s “Tour de Fraud.” BNP will pay an $8.9 billion fine — the largest the U.S. has ever levied against a foreign bank — fire or discipline over 50 employees (many of whom had already left the bank or “retired”), and plead guilty to criminal charges that it violated U.S. sanctions by providing dollar-clearing services in Iran, Sudan, and Cuba. The bank will be barred from conducting certain dollar-clearing operations for a year, starting in January 2015, and from clearing transactions for other outside banks in New York and London for two years. The WSJ has a good summary of what that means for the bank and its clients.

Lars Machenil, BNP’s CFO, says the fine will not significantly hamper the bank’s ability to provide services or pay out the expected dividends to shareholders. BNP’s share price, which has fallen about 15% since news of a possible penalty first broke in February, rose about 4% today, closing at $51.33. George Hay at Breakingviews thinks the bank’s finances seem okay:

Factoring in net income likely to be generated by BNP by the end of this year, and $1.1 billion already provisioned against the U.S. fine, the bank could still muster a 10.1 percent core Tier 1 ratio under Basel III rules, even if it pays a dividend. If it scraps dividends altogether, the ratio would jump to 10.5 percent. That’s still higher than where peers like Société Générale are now.

But this is still going to hurt. The Financial Times’ Lex thinks that the year-long suspension could lead to an unusual amount of trouble for BNP Paribas in a way that other fined banks haven’t seen. It will force some clients to move their assets — assets that may not come back to BNP after the year is over. The Economist says that even aside from the bank’s money troubles, BNP’s reputation has been scuttled by its decision to do business with some of the world’s most brutal regimes. While U.S. regulators often prefer to hand out “punishments that don’t do any harm,” says Matt Levine, ”this punishment actually sounds reasonable: If BNP did a lot of sanctions violating in your Geneva office and your oil financing business, why not make it stop using dollars in those businesses for a while?”

French politicians, of course, are not pleased, accusing the U.S. of being unreasonable. President Francois Hollande asked President Obama to go easy on BNP when the two met for D-Day anniversary celebrations last month. Walter Kielholz,the chairman of reinsurance group Swiss Re, says European bankers and investors are tired of being pushed around by American regulators. Mohamed El-Erian questions whether cases like this can give the impression of a political vendetta against foreign banks, and thus “increase uncertainty, discourage banks from funding productive long-term investments, and fuel anti-globalization and isolation — all of which hampers and distorts extending credit to small- and medium-sized firms that are major drivers of employment and innovation.”

The one thing that probably won’t be changing at BNP: its chairman, Baudoin Prot (he served as CEO from 2003-2011). For all the fallout, Prot isn’t likely to leave (or lose) his job anytime soon, says Pierre Briancon at Breakingviews, but he absolutely should. “That Prot’s resignation was not sought by U.S. investigators is irrelevant: decency is not something one should be forced into,” writes Briancon. — Jordan Fraade

On to today’s links:

Oxpeckers
The robots are taking our jobs, earnings reporter edition - Nikhil Sonnad

Health Care
The case for getting rid of employer-sponsored health insurance - Uwe E. Reinhardt

Takedowns
Martin Wolf takes on the latest BIS annual report - FT

Wonks
“If we kill Ex-Im, there seems to be a real possibility that whatever is causing our trade deficit might get worse” - Noah Smith

Ugh
Unemployment in the euro zone is 11.6% - Joe Weisenthal

Macro Problems
How bad policy is making the Great Recession’s damage permanent - Matt O’Brien

Bitcoin
So there’s now a pizza bitcoin extortion scheme - Grub Street

Startups
Startups are 19% less likely to succeed if the founders are college friends - Carlos Bueno

Servicey
The National Archives will upload all of its content to Wikimedia Commons - Julian Chokkattu

Stuff We’re Not Linking To
There is a thing called the “Good Country Index,” and Ireland has won it – Business Insider

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