Iran broadside brings StanChart holiday to a halt

STANDARDCHARTERED-IRAN-HOLIDAY:Iran broadside brings StanChart holiday to a halt

london  08 08, 2012, 03:40 IST

 

Standard Chartered Chief Executive Peter Sands packed his bags last week and went on vacation, confident that his London-based bank had escaped the kind of regulatory punishment inflicted on his rivals at HSBC and Barclays.

Largely insulated from the euro zone's troubles which have hurt many rivals, the white-haired yet boyishly lively 50-year-old was confident his firm was attuned to any problems and well prepared for any market trouble ahead.

"We have our risk radar turned on full, given the turbulence in the external environment," a relaxed-sounding Sands said last Wednesday after first-half results put the bank on track for a 10th straight year of record profits in difficult circumstances.

What his defences had not detected was the possibility of a full-blown attack by New York regulator Benjamin Lawsky, who on Monday accused his bank of scheming with the Iranian government and hiding 60,000 transactions totalling $250 billion in order to make hundreds of millions of dollars in fees.

The bank was completely blindsided, Standard Chartered insiders said. It has been in talks with regulators since early 2010 on the transactions and had no warning whatsoever that the New York State Department of Financial Services (DFS) was about to issue it with a threat to tear up its banking licence.

Asked last week about the long-running talks with regulators over Iran, Sands sounded calm. He said: "This is very different to some of the things you've been hearing about elsewhere".

Only days later, he and Chief Financial Officer Richard Meddings, who had also departed on holiday after the results, were among top executives who scrambled together a conference call to tackle the accusations and start putting up a defence.

LATE-NIGHT SCRAMBLE

The headline-grabbing document released by the New York regulator described officials at Standard Chartered, one of the banks least tarnished by the financial crisis thanks to its focus on emerging markets and a conservative approach to capital and liquidity, as debating whether to continue Iranian dealings.

In October 2006, the regulator said, the bank's top official for business in the Americas warned in a "panicked message" that the Iranian dealings could cause "catastrophic reputational damage" and "serious criminal liability".

These details had been made public on Monday just before the bank's shares closed on the London Stock Exchange, and in a sign of things to come, had driven them sharply lower.

The top team worked late into the night, finally agreeing on a statement that went out after midnight in London - a little after 7 p.m. in New York. Most of Standard Chartered's public relations has been done in-house of late after a beauty parade among London PR firms to hire a new external adviser.

Sands and Meddings have worked together at the top of the bank since November 2006, the month after a damaging email contained in the DFS document referring to the bank's business with Iran was sent to an unnamed executive director at the bank.

The pair, both dedicated sports fans who were looking forward to catching more of the London Olympics now that their results were out, decided attack was the best form of defence.

Their response was robust, if lacking in detail.

The bank said it would contest the regulator's position, arguing it had cooperated with U.S. agencies and given regular updates on its own investigations into its compliance with U.S. sanctions. It added that it had handed over several thousand pages of documents and interview notes, plus analysis of approximately 150 million payment messages.

But damage had already been done and, coming in the wake of big U.S. fines in unrelated cases for fellow London institutions HSBC and Barclays, Lawsky's broadside had blown a hole in Standard Chartered's hitherto pristine hull.

By the time the shares opened in London, questions about the potential cost of any settlement, the reputational damage and whether executives still working at the bank would be tainted were high on the list of unknowns raised by investors.

As Sands and Meddings, 54, rushed back to try and put out the fire, Standard Chartered shares fell as much as 25 percent, wiping $17 billion from the bank's market value.

BIG TEST NOW

For Sands, a former McKinsey consultant and ardent fan of Arsenal Football Club which plays near his north London home, the crisis is the first big, public test of his six years running the bank, which does most of its business in Asia.

His success has even made him a possible candidate for the role of the governor of the Bank of England.

Both Sands and his No.2 Meddings, who supports his home town club Wolverhampton Wanderers, kicked back questions about their personal futures during last week's results briefings - both said they were "very happy" running a good bank with a good team that had avoided the pitfalls of rivals.

Sands, who grew up in Asia and also worked in the British Foreign Office before moving into banking, is married to author Betsy Tobin and has four children.

A preference for modest watches over pricier timepieces favoured by the City of London's high-fliers reflects what friends and colleagues call his down-to-earth nature. His wife once said the Oxford and Harvard graduate likes to read "chick-lit" novels and unwind by watching romantic comedies with his daughters.

But Lawsky's regulatory ambush on the bank, which the New Yorker described as "a rogue institution", is likely to mean little leisure for Sands for some time to come.

(Editing by Alastair Macdonald)