Aug. 8, 2012 at 3:49 PM ET
NEW YORK/LONDON -- Standard Chartered won some help from Britain's central bank governor on Wednesday in its defense against a U.S. regulator's allegations that it hid $250 billion of sanctions-busting transactions with Iran.
The British bank lost over a quarter of its market value in 24 hours after the New York State Department of Financial Services threatened on Monday to cancel its state banking license -- critical for dealing in dollars -- and called it a "rogue institution" for breaking U.S. sanctions against Iran.
Standard Chartered shares bounced 7.1 percent on Wednesday to close in London at 13.15 pounds, up from a 3-year low of 10.92 hit earlier in the week. They were still down 18 percent since the regulator's threat, which chief executive Peters Sands said was "disproportionate" and came as a "complete surprise".
The bank's top executives, some like Sands scrambled back from summer vacations, worked on its defense strategy, having so far contested the regulator's figures and his interpretation of the law, but given little detail. The bank says only a tiny proportion of its Iran-related deals -- less than $14 million -- were questionable under U.S. sanctions.
Bank of England Governor Mervyn King drew unfavorable comparisons between the handling of this case and other U.S. actions against British banks, such as the interest rate-manipulating investigation into Barclays PLC.
In the Barclays case, he said, all regulators in Britain and the United States produced coordinated reports after the investigation was complete. But in Standard Chartered's case, "one regulator, but not the others, has gone public while the investigation is still going on".
Sources familiar with the matter told Reuters that the New York regulator Benjamin Lawsky had angered officials in Washington at the U.S. Treasury Department and Federal Reserve by going it alone.
"I think all the UK authorities would ask is that the various regulatory bodies that are investigating the particular case try to work together and refrain from making too many public statements until the investigation is completed," King said.
Standard Chartered CEO Peter Sands, in his first public comments since the crisis arose, said the regulator had given his bank no prior notice. But he offered no major new information on the allegations, which the management have been reviewing with authorities for the past two years.
"(We) fundamentally reject the overall picture and believe there are no grounds for them to take this action and it would be wholly disproportionate," he told reporters, referring to the threat to cancel the bank's license to operate in New York.
Though Standard Chartered's business is concentrated in emerging markets, which has helped insulate it from the global financial crisis, its operation in the state is important to its ability to offer dealings around the world in U.S. dollars.
On Monday, Lawsky had reproduced what he said were quotes from an unidentified Standard Chartered executive director in a conversation in 2006 that demonstrated the bank's "obvious contempt" for U.S. banking regulations.
"You f---ing Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians?" the quote was rendered in documents released by the regulators.
People familiar with the situation said the bank's Group Finance Director Richard Meddings, one of five executive directors at the time, was the unnamed man.
Ray Ferguson, a bank executive who attended that meeting, told Reuters that while Meddings had used the expletive in a heated exchange, he did not, to his recollection, say the second part of the quote attributed to him about U.S. sanctions.
Meddings did not respond to repeated requests for comment.
Asked for the bank's view on the quote, Sands said: "We don't believe it's accurate." He defended the ethics of the bank, which he has run for six years: "I don't think there is anything wrong with the culture at Standard Chartered," he said.
Calling the allegations "very damaging", he said he would address "mistakes" which had been "clearly wrong", but said: "There were no systematic attempts to circumvent sanctions."
The BoE's King said he did not share the view held by some that the move in New York was part of a concerted U.S. effort to undermine London as a financial center, following the Barclays probe and a U.S. Senate panel report that criticized HSBC Holding's efforts to police suspect transactions.
One British lawmaker, however, said the affair was part of a "political onslaught" in the United States against British banks.
"I think it's a concerted effort that's been organized at the top of the U.S. government. I think this is Washington trying to win a commercial battle to have trading from London shifted to New York," said John Mann, a member of parliament's finance committee, who also called for a parliamentary inquiry.
A British executive at an institution that ranks among the top 25 shareholders in Standard Chartered also said politics was motivating U.S. officials.
"Are we starting to see an anti-London bias in U.S. regulatory activities?" the executive asked. "Oh yes. Is there any subtle form of banking sector protectionism going on? Yes."
One of Standard Chartered's top 10 shareholders said it was surprising that the bank had been caught up in the scandal, given that the bank had reassured investors it was clean and had a "superior culture".
"I get the impression that they do think a lot about risk, or at least they communicate that to investors, and so it is quite interesting that they have tripped up on a risk thing. According to the DFS, they were undertaking such activities knowing what the risks were."
Tom Hibbert, head of the banking litigation group at London law firm RPC, said much may depend on the - unknown - details of Standard Chartered's interaction with the DFS so far:
"But," he said, "History tells us that it is extremely tough to take on the U.S. regulators and win, whatever the merits of the regulator's case."
Below, Alireza Nader of The Rand Institute, discusses the fallout for Standard Chartered Bank over allegations it was doing business in Iran with CNBC.
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