-- Standard Chartered's Hong Kong-listed shares slump on U.S.
allegations of illegal transactions with Iran and broker
downgrades
-- The U.K. lender rejects accusations made by the New York
regulator that it didn't comply with U.S. regulations
-- Analysts say it's too soon to comment on the outcome of the
matter
(Recasts 1st paragraph, adds share price in 2nd paragraph,
bank's statement in the 4th-6th paragraphs and analysts comment's
in the 8th-10th paragraphs.)
By Fiona Law and Yvonne Lee
HONG KONG--Standard Chartered PLC's (STAN.LN) shares in Hong
Kong tumbled to their lowest level in more than two and a half
years on Tuesday, hit by broker downgrades following allegations by
New York's financial regulator that the bank's U.S. unit ran a
"rogue institution" that "schemed" with Iran's government to hide
illegal transactions.
At 0600 GMT, Standard Chartered plunged 7% to HK$174.9, its
lowest level since Nov. 27, 2009, after its London-listed shares
dropped 6% late Monday.
The New York State Department of Financial Services on Monday
threatened to revoke the license of Standard Chartered Bank, a U.S.
unit of the U.K. bank located in midtown Manhattan, as it accused
the bank of hiding more than $250 billion in illegal transactions
for nearly a decade.
Standard Chartered on Tuesday rejected the accusations by the
U.S. regulator, saying that the amount in question has been
over-stated.
"The group does not believe the order issued by the DFS [New
York State Department of Financial Services] presents a full and
accurate picture of the facts," it said in a statement. The banking
group said it has conducted a review over the past few years and
has always complied with U.S. regulations on transactions.
The total value of transactions which didn't follow U.S.
regulations was under $14 million, the lender said.
The U.S. claims against Standard Chartered are the latest to hit
the beleaguered banking industry already reeling from scandals
including Barclay's libor-rigging case and J.P. Morgan's recent $2
billion trading loss, with banks facing increasing scrutiny on
their corporate governance and practices.
Still analysts said it's too early to speculate on the outcome
of the U.S. investigation on Standard Chartered.
Although Standard Chartered can easily absorb any potential
penalty on this issue, J.P.Morgan said the focus will be on the
bank's New York license and its U.S. dollar-clearing operations,
which is the seventh largest in the world and a key driver of
robust first-half earnings in the wholesale banking business.
Nomura, meanwhile, downgraded the bank's rating to Neutral from
Buy, citing "serious" allegations that are likely to lead to
"material headline risk."
But what's more damaging in the long-term is the negative impact
on Standard Chartered's reputation, said Citic Securities analyst
Steven Chan. "U.S. business only accounts for a small proportion of
Standard Chartered's balance sheet. What's more important is
whether the Hong Kong regulator questions its role as a fit and
proper institution," he said, adding the bank generates huge
revenue and profits from Hong Kong.
The Hong Kong Monetary Authority wasn't immediately available
for comment.
On Monday, Benjamin M. Lawsky, superintendent of the New York
State Department of Financial Services made the allegations in a
27-page order, saying the agency's ongoing investigation of the
U.K. bank "has uncovered evidence" of "schemes" by a Standard
Chartered subsidiary in New York to conduct business with
U.S.-sanctioned countries, such as Libya, Burma and Sudan.
The New York agency ordered officials of Standard Chartered's
U.S.-based subsidiary to "explain these apparent violations of law"
at a hearing later this month.
Write to Fiona Law at fiona.law@dowjones.com and Yvonne Lee at
yvonne.lee@dowjones.com