Labour MP fears US regulators may targeting ‘wild west’ culture in City to grab business for New York
The Labour MP John Mann, an outspoken member of the Treasury select committee, has called for a government inquiry into money laundering, and outlined fears that US regulators have British banks in their sights as they try to shift business from London to New York.
The allegations against Standard Chartered, made on Monday by the little-known New York state department of financial services, also prompted calls by the investment advisory agency Pirc for discussions with top bankers about the industry’s ethics.
One large shareholder in banking stocks warned that it was considering ditching all its investments in the sector in the wake of the Libor scandal and the money laundering allegations at HSBC – which were compounded by the allegations against Standard Chartered.
The damning criticism of Standard Chartered, which intends to contest the claims that it worked with Iran, is another blow to the reputation of UK banking businesses, and is thought to be feeding prejudice in the US that the UK’s regulators have allowed a “wild west” culture to become established.
Mann, the MP for Bassetlaw, said he would request a government review into money laundering and “an increasing anti-British bias by US regulators and politicians aimed at shifting financial markets from London to New York”.
He said: “I have no truck whatsoever with British banks profiteering from Iran and Burma, nor with US banks profiteering from drug and illegal arms money or the private accounts of world dictators. The British parliament should instigate an unbiased and far-reaching investigation into money laundering in Britain, involving British banks and endangering the wellbeing of British interests and the British people.”
The sharp fall in Standard Chartered shares demonstrated that the accusations were being taken seriously by investors, who last week were celebrating the 10th successive year of record profits at the bank, which though based in London specialises in emerging markets.
“Shareholders should now be thinking about industry-wide engagement to sort out the reputational and ethical crisis that is engulfing the UK banking sector,” said the agency Pirc.
Standard Chartered’s share price was hit particularly hard by fears that the hitherto top-rated management team might be forced out by the allegations and worries that the bank would be at risk of losing its licence in the US.
Banking analysts at Credit Suisse said that licences had not been revoked from other banks for similar offences, but acknowledged: “The market is already concerned about litigation risk and regulatory issues in the sector, especially given recent events at Barclays and HSBC, so this does not help sentiment at a time when it is fragile.”
More details were being sought by investors and analysts, although the Credit Suisse analysts noted that Standard Chartered was not the first bank to encounter the wrath of US regulators over sanctions breaches.
Lloyds TSB was fined $350m in September 2009, and Barclays $176m in August 2010, according to Credit Suisse. Other banks, such as the Dutch ING group and Wall Street’s JP Morgan, have also had to pay big penalties.
Gary Greenwood, banking analyst at Shore Capital, thought it was unlikely Standard Chartered would lose its US licence. “A loss of its US banking licence would not only jeopardise part of this profit stream, but the associated reputational damage could also have a severely damaging impact to its operations within emerging markets … However, at this stage, we view this outcome to be unlikely.”
City analysts have been supporters of Standard Chartered shares throughout much of the financial crisis, which the bank survived without taxpayer bailouts.
Even so Sandy Chen, at Cenkos Securities, who has recommended buying the shares for most of the past decade said he was downgrading to sell. “We regard this as hugely damaging to its global franchise,” he said.
Mike Trippitt, an analyst at Oriel, cut his rating to “reduce” from “buy”. He said: “The tone and language of the report is quite shocking, but it was equally a very firm rebuttal from Standard Chartered to say it was acting lawfully and measuring what they think was outside the rules.”
There were also supporters. Ian Gordon, banking analyst at Investec, described the US regulators’ move as “unexpected and ferocious attack”.
Gordon said: “Standard Chartered is not an ordinary bank. It has a proud reputation, a management team of high integrity, and is known for its magnificent work with the charity Seeing is Believing. It is of grave concern to see its reputation sullied before the facts are known.”
Greenwood added: “As is par for the course in these situations the spotlight will now fall on management, with the inevitable calls for heads to roll by politicians and the media alike. However, while not wishing to vindicate senior management in this issue, we believe a knee-jerk reaction of removing them is not the answer as it may only exacerbate the situation.
“We believe that the management team now needs to focus all of its efforts on mitigating the potential reputational damage.”
Sands is one of the few bankers to remain at the top of their institution through the financial crisis after taking the top job in 2006. During his tenure, he more than doubled the number of employees from 28,000 to more than 80,00 and could seemingly do no wrong. He has been close to successive governments and used the bank’s central London offices to host meetings with ministers and civil servants at the height of the downturn, creating the scheme for taxpayers to save RBS, HBOS and Lloyds. His reputation surged, helped by the decision to waive his £2m bonus in 2010, and he had been mooted as the next governor of the Bank of England. More recently he was part of the review into university funding, which suggested fees rise to £9,000-a-year, and is a non-executive director at the Department of Health.
The polite finance director had been one of the front-runners to replace Bob Diamond at the helm of Barclays. He worked there as group financial controller before joining Standard Chartered in 2002 and was finance director of Woolwich when it was bought by Barclays in 2000. At Standard Chartered the married father-of-three was group executive director responsible for risk, and is said to have been on a list of those warned by the bank’s US chief executive about the potential problems in dealing with Iran in 2006. A month later he was named finance director. In 2008, amid the financial crisis he advised the government at the height of the financial crisis and more recently he has been fending off questions about whether the bank will move its HQ overseas.
The fast-talking Welshman was a virtual unknown outside banking circles before he was named chief executive of Standard Chartered in 2001, having previously run the bank’s Asian operation. The football and rugby fanatic, who started his career with the bank in 1993 after 10 years at Citibank, quickly built a solid reputation and impressed politicians. After five years as CEO, he was promoted to chairman in 2006 – in breach of corporate governance codes. Gordon Brown appointed him chairman of his Business Council for Britain in 2007 and at the height of the banking crisis Davies helped provide the outline to the bailout. He was given a life peerage and became trade minister under Lord Mandelson, although Brown was keen to make him RBS chairman. He is the government’s board diversity czar and is calling for more women in boardrooms.
The superintendent of financial services in New York State is a newly created role which Lawsky has taken to with aplomb. Well known in political circles, he was chief of staff to New York state governor Andrew Cuomo and previously a deputy counsellor and special assistant when Cuomo was attorney general. With a ferocious work ethic and a talent for public relations, the 42-year-old grandson of refugees from Nazi Germany wanted to become an architect, but settled for law, prosecuting white collar crime, organised crime, and terrorism cases in New York. He says his objectives are “keeping New York on the cutting edge as the financial capital of the world, protecting consumers better than ever before, and serving as a model of efficient government.”
Profiles by Simon Neville