Date
18 August 2017
Standard Chartered's Greater China chief Benjamin Hung (L), Asia chief executive Jaspal Bindra (C) and Asia chief financial officer Julian Fong (R) at the bank's post-results briefing in Hong Kong Wednesday. Photo: HKEJ
Standard Chartered's Greater China chief Benjamin Hung (L), Asia chief executive Jaspal Bindra (C) and Asia chief financial officer Julian Fong (R) at the bank's post-results briefing in Hong Kong Wednesday. Photo: HKEJ

StanChart faces fresh US fines over money-laundering controls

Standard Chartered plc (02888.HK) has warned that it could face fresh fines from US authorities for lapses in the bank’s anti-money laundering systems and controls.

“We are engaged with the New York Financial Services Department over the matter,” Benjamin Hung, StanChart’s Greater China chief executive, said in a post-results briefing in Hong Kong Wednesday.

“It is not like what happened in 2012; this is just about surveillance on anti-money laundering, while [the fine] in 2012 was related to the sanctions list,” he said, referring to the earlier US fine for violating sanctions rules on Iran, Sudan and some other nations.

New York State’s financial regulator is preparing to act against the bank over breakdowns in a computer system that was supposed to detect transactions vulnerable to money laundering, New York Times reported Tuesday, citing sources familiar with the matter.

The New York regulator believes millions of suspect transactions were not flagged by StanChart. The bank could face a nine-figure fine if a settlement deal is reached, according to the Financial Times.

In 2012, Stanchart was fined US$667 million for hiding transactions with Iran and some other countries on US sanctions list.

StanChart announced on Wednesday a 20 percent drop in pretax profit for the first half this year at US$3.27 billion. Operating income fell 5 percent to US$9.27 billion, according to an exchange filing. Impairment loss deteriorated 16 percent to US$846 million for the period.

Hung believes profits this year will be weaker over 2013, but the second-half performance should be better compared to the same period last year.  He attributed the expected second-half improvement to wealth management, transaction banking and corporate financing businesses.

Private Banking focus

“We will work on three major aspects in our Greater China business, one of them is to capture high-net-worth individuals, in terms of the offshore management,” Hung said. 

“Private Banking clients will be a main growth engine for the bank as assets under management are climbing at 13 percent per year,” he said.

Private Banking clients segment was the only division that recorded income growth in the first half. Income expanded 4 percent to US$314 million compared with a year earlier, while corporate and institutional clients, commercial clients and retail clients segments saw incomes fall 2 to 24 percent.

StanChart’s private banking arm pointed out in a report in late July that private banking institutions are yet to fully tap the opportunity to provide philanthropic advisory services to high-net-worth individuals.

The bank remains optimistic on the Greater China market as well as the rest of Asia. Operating income for Greater China rose 5 percent to US$2.79 billion in the first half of 2014, with US$1.99 billion coming from Hong Kong. 

Besides accumulating high-net-worth clients, StanChart will also step up client flows in and out of China and ride the Chinese market as the authorities prepare to open up the capital account and the yuan exchange regime.

The bank opened a wealth management center in Hong Kong’s Central financial district earlier this year and boosted the frontline staff by 10 percent.

“We are confident about the Greater China and other Asian markets,” Hung said.

Asset quality

StanChart saw its profit before taxation in Greater China fall 6 percent to US$1.15 billion in the first half, with impairment losses worsening 67 percent to US$212 million compared with the same period last year. Income from the Greater China market took up 30 percent of the group’s total operating income at US$9.27 billion for the period.

Pre-tax profit in Hong Kong fell HK$163 million to US$868 million mainly due to higher impairment, of which US$157 million impairment was related to Qingdao commodities. Hung said the US$157 million fraud was an isolated incident and that the bank “does not see this level of impairment in the second half”.

However, there will still be some pressure on loan quality in China as the nation’s property market remains soft. “There will be upward pressure on non-performing loans (NPL) especially from industries with over-capacity,” Hung said.

That said, the NPLs situation overall “remains healthy”, he added.

In terms of customer loans and advances, Greater China remained the largest for the bank with a share of 30 percent, followed by Association of Southeast Asian Nations at 28 percent and Europe at 14 percent, a company statement said.

Separately, StanChart Asia chief executive Jaspal Bindra said the South Korean business will remain tough in the second half. But the bank has worked on cost cuts including a reduction in the number of branches and staff in that country, he said.

Renminbi clearing service prospects between China and South Korea will help the business, Bindra added.

Yuan deposits at banks in South Korea rose by a net equivalent of US$640 million in June to a record high US$11.97 billion, Reuters reported on July 4, citing Bank of Korea data. However, the rate of increase slowed due to an increase in yuan borrowing costs.

StanChart’s operating income in Korea dropped 26 percent in the first half, while profit before tax slid 193 percent from a year earlier.

– Contact the reporter at [email protected]

RC

Ayishah Ma is a financial reporter on Greater China issues.

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