Standard Chartered: US banking watchdog issues second fine

6 August 2014

Standard Chartered admitted today it is in line for a second heavy fine from New York banking watchdogs as it reported that first-half profits had fallen by a fifth.

News that the troubled Asia-focused lender is again in the crosshairs of New York’s top banking regulator, Benjamin Lawsky, comes two years to the day after he issued a devastating report accusing the bank of sanctions-busting, leaving the US exposed to terrorists, weapons dealers and drug kingpins, and describing it as a “rogue institution”.

Having initially denied the charges the bank subsequently apologised and paid a $340 million (£201 million) settlement with Lawsky. Further penalties totalling $327 million from the US Department of Justice and the Federal Reserve followed.

Today the bank’s embattled chief executive Peter Sands confirmed “ongoing discussions” with Lawksy over “certain issues with respect to the group’s post-transaction surveillance systems and money laundering controls”.

This, he said, would probably mean an extension of the term of the monitoring regime the bank is under, plus a financial penalty. But Sands said: “We believe this will be less than in 2012.”

The problems were caused by a new computer system designed to improve monitoring of risky transactions that failed to pick some of them up.

The bank reported adjusted pre-tax profits of $3.3 billion on income of $9.3 billion, down 5%, driven lower by losses in South Korea and a $432 million fall in revenues from the financial markets business.

Despite pouring money into boosting its compliance function, costs increased by just 1%. But loan losses and impairments surged to more than $1 billion, with a big chunk of that down to a commodity fraud in China. Sands said he had been out there and was “on top” of the issue.

He described the results as “clearly disappointing” and warned that there would be no “quick fix” for the bank’s problems. “It is not what we strive for and not what our investors expect.”

But with a note of defiance Sands said: “To put this in context we made more profit in these six months than in the whole 12 months of 2006. We are not struggling to match pre-crisis profitability. We are taking action. It is not knee jerk.”

Sands has been under pressure since reports emerged that shareholders were pressing the board to name a successor. The board denied this in an unusual announcement to the stock exchange.

Following profit warnings and a rash of senior departures, the bank has re-organised, and Sands argues that the move is already yielding results.

Standard Chartered: US banking watchdog issues second fine

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