Standard Chartered Crisis Timeline

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Standard Chartered (LSE:STAN) is a global bank offering financial services in nearly 70 countries.  Although headquartered in London, the bank is heavily involved in Asia, Africa, and the Middle East.  The banking firm often provides its services in developing countries with emerging markets.  This business strategy made it one of the best performing banks during the 2008 financial crisis and following recession.

It was even able to maintain its pristine reputation amid all the banking scandals coming to light this summer.  From Libor rate fixing to accusations of money laundering and funding drug cartels, Standard Chartered steered clear of any controversies and continued its steady performance.

Last week, Standard Chartered announced an 11% increase in profits over the first half of 2012.  Net income rose to $2.86 billion, which exceeded analysts’ expectations by about $100 million.  CEO Peter Sands predicts the multinational banking and financial services firm will meet its year-long target of double-digit growth in revenue and earnings per share.  Last Friday, Standard Chartered’s share price grew slightly throughout the day.

Friday 3rd August:

Monday, 6 August 2012, brought growth similar to last week’s performance until the last few minutes of trading.  As news broke of New York’s State Department of Financial Services’ allegations that Standard Chartered had hidden $250 billion in Iranian financing, the stock rapidly plummeted.  Standard Chartered supposedly allowed 60,000 Iranian U-turn transactions, transactions neither starting nor ending in Iran that transfer money for Iranian clients through foreign banks.  The DFS’s report alleges Standard Chartered hid these transactions by changing the wire transfer codes that indicate where clients are located.  In the final moments before London’s markets closed, Standard Chartered’s share price declined nearly 10%, a huge drop-off for a relatively stable stock.

Monday 6th August:

When the markets opened Tuesday morning, Standard Chartered’s stock had dropped an additional 13.5%.  It continued to decline before a slight recovery to just below the day’s opening level.  The bank’s alleged involvement in funding terrorist organizations and nuclear weapons programs scared investors, especially with potential fines looming.

Tuesday 7th August:

Standard Chartered claims its violations of US regulations are on a much smaller scale than the Department of Financial Services reported, supposedly around $14 million.  With this news, the share price has regained some of Tuesday’s losses as investors hope to take advantage of a temporarily undervalued stock.

Wednesday 8th August:

Later this month, Standard Chartered will appear before a regulator to assess the validity of DFS’s claims and any punishments deemed necessary.  Many people believe the US does not have the right to impose its regulations on firms operating outside the country, although Standard Chartered does have a New York branch which processes nearly $200 billion daily.  Additionally, there is some speculation that this report is simply another attempt by the US government to shift trading from London to New York.

While nothing will be certain until the hearing and further investigation, Standard Chartered’s quick and adamant denial of DFS’s accusations make it seem as though the allegations may be exaggerated.  Analysts are encouraging investors to buy or hold Standard Chartered stock as it is much lower than its true value.  Even with the potential loss of its New York banking licence, Stand Chartered will still be a major financial services provider worldwide as it continues its expansion in Africa and Asia and explores new products such as online and mobile banking.

Monday 13th August:

A few days after the initial accusations, more details about the investigation have become public.  The New York Department of Financial Services is looking to take a less time-consuming route that is more likely to end in a settlement by focusing the review on Standard Chartered’s alleged falsifying of records as opposed to the nature of the transactions involved in the falsified records.  A records case is much more clear-cut than a case involving federal requirements prohibiting transactions with sanctioned countries and should prevent a destructive legal battle for both sides.  Some experts are already speculating that a settlement will be reached and Standard Chartered will retain its New York banking licence.

Wednesday 15th August:

After slight improvements throughout the day Tuesday, Standard Chartered’s share price had increased more than 7% when the market’s opened Wednesday.  This growth is a result of investors’ relief following the announcement that the emerging markets banking firm had reached a settlement with New York’s Department of Financial Services.

Standard Chartered will pay £217 million ($340 million) to avoid an official hearing that could have been public and potentially very damaging.  As part of the agreement, the New York branch will hire a monitor to oversee its compliance procedures and report to regulators for at least two years.

Considering the profits Standard Chartered made from these Iranian transactions, many expected the settlement to be much higher.  DFS released a report confirming that its initial estimate of $250 billion worth of illegal transactions was accurate; leading some analysts to predict levies greater than $1 billion.  Furthermore, Standard Chartered will retain its New York banking license, which some feared was in jeopardy.

While the settlement with DFS is a sign that Standard Chartered will be able to move forward and try to repair its reputation, the bank still has outstanding cases with the New York Fed, US Treasury, district attorney, and Department of Justice that need to be settled.  In the first hours of trading, Standard Chartered’s share price has declined slightly, but is still more than 4% above yesterday’s closing.  This settlement looks to end a week of ugly accusations and denials and begin the bank’s process to leave this fiasco behind, allowing investors to value the share price on performance fundamentals as opposed to controversy and speculation.


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