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Standard Chartered Bank (LSE:STAN) share price dropped a whopping 23.47% by noon today. Shareholders are leaving like rats on a sinking ship. With the share price sinking by 345.00p to 1,125 on a volume of nearly 54 million shares, the company has lost more than £11.5 billion in market value in a matter of a few hours.
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Confidence is a Priceless Commodity
The newest crisis in banking sector at Standard Chartered clearly demonstrates that confidence is the key to a company’s share price. Until today the bank has avoided almost all of the scandals that have plagued the banking sector. However, this may end up being the biggest controversy of all of them. It doesn’t matter whether a company is cutting back on operations or expanding; whether it is leaving a market or entering a new one; whether revenues are up or whether they are down. It doesn’t matter, as long as investors are confident that what is happening is ultimately going to improve the company’s bottom line, is going to stimulate the company’s growth, or is going to improve the company’s reputation. This massive loss today is all about reputation and how investors think a scandal will adversely affect the bank’s profitability, and, therefore, their own wealth. Remember, not only has the bank lost nearly 25% on those shares today, so have the shareholders who failed to disembark.
One U-turn Deserves Another
Standard has been accused of laundering as much as £161 billion of Iranian funds through its branches in New York over a period of almost ten years from 2001 to 2010. The New York branch clears nearly £121 billion per day for international clients. The bank used a transaction system call a U-turn. Just like U-turns are illegal on most New York State highways, U-turns have been prohibited for Iranian funds under current US regulations and sanction.
The New York State Department of Financial Services says that it has documented proof that Standard Chartered had made millions of dollars by falsifying information on and related to wire transfers, hiding the fact that the transactions were being done on behalf of Iran. The alleged subterfuge was accomplished, at least in part, by “stripping the message of unwanted data that shows the clients were Iranian, replacing it with false entries.” The DFS report characterized Standard Chartered as a “rogue institution” and said that the bank has left the US “vulnerable to terrorists, weapon dealers, drug kings, and corrupt regimes.”
Confidence is rooted in trust in the integrity of an individual or an institution. The allegations made public today have impugned that integrity of Standard Charter. A lack of integrity breeds a lack of trust, which culminates in a lack of confidence. We don’t leave our investment with someone we can’t trust. We cannot be confident that we will get the return we are hoping for. By far and away the bulk of Standard’s business is conducted on behalf of Asian clients, for whom reputation is even more important than it is in Western cultures. The repercussions of this accusation may have both a continuing and long term impact. Only time will tell.
What is the Potential Direct Effect on the Bank?
There are several possibilities. First, if proven guilty, Standard would likely lose its license to operate in New York. Second, there is a strong possibility of receiving a fine of up to £638 million. Finally, the law provides for up to 20 years of jail time for those involved.
We are not Crooks!
Standard Chartered is challenging the report, saying that the bank brought the matter to the attention of US authorities and had cooperated with the entire investigation thus far. A spokesperson said that the bank does not believe that the report “presents a full and accurate picture of the facts.” The bank “takes its responsibilities very seriously and seeks to comply at all times with the relevant laws and regulations.” Of course that doesn’t ring true with the comments of one, thus far unnamed, UK based, bank director who said, “You f***ing Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians?”
Standard Chartered has a problem. A big one. It claims innocence whilst it also claims to have turned itself in. It is equating cooperation in the investigation with not being guilty. And its shareholders are jumping ship quicker that the directors can convince them to stay. How it will end, no one knows. Guilty or not guilty, right now it’s a giant helping of a lack of confidence.
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