Banks that wish regulators, generally speaking, would go away are once again making headlines that appear far more damaging than their monetary fines.
British bank Standard Chartered reportedly was willing to pay about $5 million to settle charges of money laundering and lying to regulators about transactions made for Iranian clients that are possibly worse on paper than they are in reality.
Of course, $5 million to make the problem go away would be irresistible to one of the largest banks in Britain. Just the words "Iranian money" conjure up images of support for terrorism and nuclear weapons development -- the very fears behind scrutiny of doing business with Iranian clients. For a bank, this makes it all the more tempting to promise some kind of security or secrecy to its customers. No one wants every transaction they make aired in public. On the other hand, the cost of preserving a bank's reputation is hard to calculate.
In this case, Standard Chartered insisted that "99.9 percent" of the 60,000 transactions deemed potentially suspicious by the New York Department of Financial Services -- involving $250 billion over the course of a decade -- were no-consequence transactions that involved legitimate businesses and had nothing to do with illegal activity, The New York Times reported.
Unfortunately, that's like saying 99.9 percent of the contents a box of cereal in the average kitchen are not comprised of insect parts. In this case, the bank said only $14 million of the $250 billion were potentially suspicious. But $14 million buys a lot of insect parts.
Yes, it shows how wrong a headline can go. Even if a bank is not forced to admit any wrongdoing in a settlement, the damage, as they say, is done.
With sums like $250 billion being tossed around, a fine of $340 million is far more of a public relations issue than a serious blip in the bank's annual earnings.
Such a sum, if added to the bank's marketing budget, would scarcely get any attention at all at a company board meeting.
The grand sum of $340 million is "a small number to pay for the privilege of continuing to do billions of dollars of business through its New York branch," Sarah Jane Hughes, a banking law professor at the Indiana University Maurer School of Law, told the Times.
On the other hand, the bank's shares plummeted 26 percent Aug. 7, the day after the story broke, and that will wake up board members very, very quickly. Shares have since mostly recovered and the $340 million can be penciled in as a standard public relations maintenance fee, like calling the plumber because the pipes are clogged.
In international markets, the Nikkei 225 index in Japan was flat, falling 0.05 percent, while the Shanghai composite index in China lost 1.1 percent. The Hang Seng index in Hong Kong slipped 1.18 percent, while the Sensex in India rose 0.54 percent.
The S&P/ASX 200 in Australia lost 0.26 percent.
In midday trading in Europe, the FTSE 100 index in Britain gave up 0.42 percent and the DAX 30 in Germany fell 0.55 percent. The CAC 40 in France lost 0.15 percent, while the Stoxx Europe 600 shed 0.09 percent.
|Additional Analysis: Economic Outlook Stories|
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