London, 07 August 2012 -- Moody's Investors Service has not changed the ratings of Standard Chartered
Bank (A1, B-/a1, stable) or Standard Chartered PLC
following allegations of irregularities in its US dollar clearing by a
New York State banking regulator.
However, Moody's will monitor (i) the actions of the regulators
supervising the Standard Chartered group, and (ii) the extent of
any related developments with regards to the group's liquidity or franchise.
Moody's notes that this case again highlights the difficulty of large
banks in assuring tight controls within their wholesale banking operations.
BACKGROUND
The New York State Department of Financial Services (DFS), which
regulates Standard Chartered's branch in the state of New York has
alleged that Standard Chartered systematically sought to evade regulatory
requirements relating to US dollar clearing transactions for Iranian clients
from 2001-07. It has required Standard Chartered to explain
its conduct at a meeting on 15 August 2012.
The DFS has oversight of Standard Chartered's New York branch, whereas
the Federal Reserve has oversight of Standard Chartered on a national
level. The DFS has threatened to curtail Standard Chartered's US
dollar clearing activities and potentially withdraw its New York branch
license.
Standard Chartered has strongly disputed the DFS' presentation of events.
It has also pointed out that other regulatory bodies with oversight of
Standard Chartered have not made any public comment together with the
DFS.
ANALYTICAL CONSIDERATIONS
Moody's would view as credit negative any limitation on Standard Chartered's
US dollar clearing activities. This business directly supports
its global commercial and trade-finance franchise and the group
places a heavy strategic emphasis on transaction banking and cash-management
services.
The potential for closure of Standard Chartered's New York branch would
have broader implications, in particular in terms of the firm's
reputation.
The DFS has given no indication of the scale of potential fines,
if any, in this case. However, from a ratings perspective,
they are likely to be less significant than the franchise and control
considerations.
In terms of any potential impact on funding, Moody's notes that
Standard Chartered has a strong liquidity profile. It is substantially
deposit funded and its branches and subsidiaries globally must all meet
internal stress tests. However, the group does have large
deposit relationships in its wholesale bank, which may be more confidence
sensitive.
Standard Chartered is not the only bank to suffer from alleged weak controls
and a number of large banks have previously been subject to fines or prosecution
in relation to OFAC violations over 2009-2012, (including
HSBC Holdings, ING, Barclays ABN AMRO, Credit Suisse
and ANZ). Moody's views as a credit negative the difficulty of
banks in assuring tight controls within their wholesale banking operations.
WHAT COULD CHANGE THE RATING -- DOWN
Moody's will closely monitor developments. The following would
have negative rating implications for the Standard Chartered group:
(1) concerted actions by regulators that indicate (i) serious concerns
over the control environment in the Standard Chartered group, or
(ii) which meaningfully curtail its core business activities; or
(2) sustained negative impact on the bank's franchise, in particular
a material loss of deposit funding.
Patrick J Winsbury
Senior Vice President
Financial Institutions Group
Moody's Investors Service Pty. Ltd.
Level 10
1 O'Connell Street
Sydney NSW 2000
Australia
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100
Elisabeth Rudman
Senior Vice President
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454
Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
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London E14 5FA
United Kingdom
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Moody's comments on Standard Chartered following allegations by NY regulator