Standard Chartered Expected to Settle With Regulators over Breach of Iran Sanctions

on Dec 6, 2012

Standard Chartered (LON:STAN), Britain’s second largest bank by market capitalization, announced today it has settled to pay an additional $330 million (£205 million) on top of the $340 million (£211 million) already paid for breaching sanctions with Iran.

The New York Department of Financial Services accused Standard Chartered of hiding some £250 billion (£155 billion) in transactions from the authorities over a ten year period. According to the regulator, this left the financial system vulnerable to “drug kingpins” and “terrorists”. The Financial Times quoted Richard Meddings, finance director, who said that a settlement was expected by the end of the year and “discussions are going well”. He added the bank didn’t expect to face fines in any other country, which means the impending deal with the New York Justice Department, US Treasury and the Federal Reserve will put an end to the entire fiasco.

Investors welcomed the news with share prices rising 2.6 percent to £15.23 in the early morning hours, still below the peak of £15.67 they reached in August before the accusations of breaching US sanctions were made public. According to the FT, analysts at Bank of America Merrill Lynch said they had expected the remaining fines to amount to $600 million (£372 million) rather than the $330 (£205 million) million now envisaged.

Credit-default swaps on Standard Chartered fell three basis points to 88 at 11.15 GMT, their lowest level since May 2011, leading a decline in European Bank bond risk to a 19-month low.
**Standard Chartered Financial Performance**
Revenue at the bank is expected to grow in the “high single digits” while pre-tax income, excluding the effect of the future settlement fines, is seen growing at a “mid single digit” rate. According to the statement there have been no new material bad loan provisions so far in the second half of this year. Unlike most of its rivals, who are scaling back on operations and announcing massive layoffs, Standard Chartered intends to hire an extra 1,800 employees this year compared to 2011.

!m[Shares in the British Bank Retain Their “Top Pick” Rating](/uploads/story/982/thumbs/pic1_inline.png)“Standard Chartered is beautifully positioned in emerging markets and will benefit from the relatively better growth in those markets,” Jim Antos, a Hong Kong-based analyst at Mizuho Securities Asia Ltd, opined in an email today. “The bank is hiring rather than firing. Few global banks can say the same.”

**Boosting Commodities Business**
Standard Chartered announced it plans to double its commodity business revenue in the next four years tapping into its substantial emerging markets client base and opening a new trading office in China. The bank hired 30 employees in its commodities division last year in Hong Kong, Singapore, New York, London, Johannesburg and Shanghai. “We’ve hired in oil, coal, metals, ags. We will continue to hire in 2013,” Arun Murthy, global head of commodities, financial markets, said in an interview with Bloomberg.
Liberum Capital maintained its “top pick” rating for Standard Chartered shares based on improved cost efficiencies and loan losses. According to Cormac Leech, analyst at Liberum, there is a limited scope for a 2013 Earnings per Share upgrade but there is high likelihood of a Price/Earnings expansion.

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