LONDON -- Standard Chartered
Standard Chartered's dealings with U.S. regulators aren't yet finished, and it is quite likely we'll see more -- and perhaps larger -- fines on the way. However, the largest threat to the bank -- the loss of its New York banking license, and hence access to cheap and easy U.S. dollar-clearing activities -- appears to be gone.
This should be good news for investors, for whatever the total bill, the fines should be relatively easy to cope with, and business should return to usual in a relatively short time for the Asia-focused bank.
Wait -- that's not all
However, the New York fine isn't the end of the story. Standard Chartered has also agreed to submit its New York operations to third-party oversight for at least the next two years and bolster its internal money-laundering monitoring as well. These stipulations will modestly increase the bank's operating expenses but shouldn't dramatically hinder profitability going forward.
And then there is the question of follow-on fines as the U.S. Treasury and Federal Reserve take their cuts. These fines could easily be larger than the $340 million Standard Chartered will be paying to New York regulators.
Tax the rich
Even as economic pain has reduced tax income in the U.S., the past few years have been lucrative for U.S. banking regulators, as U.K. and European banks have fallen on the wrong side of America's sanctions on Iran and money-laundering in general. In 2009, Lloyds paid $350 million to deal with similar charges, and Barclays' bill was $298 million in 2010. Also in 2009, Swiss bank Credit Suisse forked over $536 million for its Iranian transgressions. Two months ago, Dutch finance group ING agreed to pay $619 million, and HSBC has set aside $700 million to deal with anticipated fines from its Mexican money-laundering charges.
Looking at this list, I imagine we could see the final bill for Standard Chartered approach or even exceed $1 billion. That's nothing to sneeze at, but it shouldn't cripple a bank that reported $6.8 billion in pre-tax income last year.
All in all, I'd say this outcome is good for Standard Chartered's shareholders, though the uncertainty of impending fines and disciplinary actions could continue to pressure the price in the near term. For those that were brave enough to buy into last week's sell-off, congratulations, and I expect the shares will continue to provide strong returns in the coming years.
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