• On 21 May 2013, Moody’s announced rating actions on MBIA Insurance Corp., National Public Finance Guarantee Corp., MBIA Inc. and other related entities. Because of the large number of credits across several asset classes affected by these rating actions, including Moody's-rated securities that are guaranteed or "wrapped" by these companies, ratings appearing on this website may not yet reflect current information. For current information on affected credits, please visit www.moodys.com/fig.
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Announcement:

Moody's comments on Standard Chartered following allegations by NY regulator

Global Credit Research - 07 Aug 2012

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
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Elisabeth Rudman
Senior Vice President
Financial Institutions Group
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Releasing Office:
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Moody's comments on Standard Chartered following allegations by NY regulator
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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