Standard Chartered To Take $900 Mln Charge Over U.S., U.K. Investigations

Standard Chartered plc (SCBFF.PK, STAC.L, STAN.L) said that its 2018 fourth quarter results will include a provision totaling US$900 million for potential penalties relating to US investigation and UK Financial Conduct Authority decision, and for previously disclosed investigations relating to FX trading issues, including the January 2019 settlement announced last month. Resolution of the US investigation and of the FCA process might ultimately result in a different level of penalties.

The company noted that it continues its discussions relating to the potential resolution of the previously disclosed investigation by the US authorities relating to historical violations of US sanctions laws and regulations.

The company said it has received a decision notice from the UK Financial Conduct Authority’s Regulatory Decisions Committee (RDC) relating to the previously disclosed investigation by the Financial Conduct Authority concerning the group’s historical financial crime controls, and is considering its options in relation to this decision notice. The decision notice imposes a penalty of about 102.16 million pounds–net of a 30% early settlement discount– on the group.

Standard Chartered noted that it will be releasing its 2018 full year results on 26 February 2019.

Danske quits Baltics and Russia as fallout from money-laundering grows

Danske Bank will close its operations across the Baltic states and in Russia after authorities in Estonia kicked out the Danish lender amid a deepening money-laundering scandal.

The Financial Supervisory Authority in Tallinn yesterday took the extraordinary step of ordering Danske to close its operations in the Baltic country.

The agency is giving Denmark’s biggest bank eight months to return deposits to customers and either sell or transfer loans to another lender.

The news surfaced not long after it emerged that the financial supervisory authorities in Estonia and Denmark were being investigated by the European Banking Authority as it tries to find out whether they did enough to prevent one of the bloc’s worst ever money-laundering cases.

In a statement yesterday, Danske said it will close down its activities not only in Estonia, but also in Latvia, Lithuania and Russia.

Danske admitted in September that much of about $230bn (€203bn) that was processed at its Tallinn-based unit was probably tainted. The bank is now under criminal investigation in several jurisdictions, including in the US, and is facing fines potentially in the billions of dollars. The suspicious funds that flowed through Estonia are alleged to have originated in the former Soviet Union.

“We acknowledge that the serious case of possible money laundering in Estonia has had a negative impact on Estonian society, and we acknowledge that the Estonian FSA, against this background, finds it best that Danske Bank discontinues its Estonian banking activities,” Jesper Nielsen, the interim chief executive officer of Danske, said in a statement.

‘Don’t buy into the sterling rally as Brexit and politics weigh’

The pound staged a mini rally after UK Prime Minister Theresa May won a confidence vote this week, although that was as much to do with euro weakness as any positive sentiment towards the currency, or on clarity over Brexit.

The battered British currency was headed for its best week against the euro in over a year, which likely says more about how far it has fallen than how far it has to rise.

The best course of action is to avoid sterling if you can, but if you do have exposure as an Irish exporter, to use any rallies to lock in hedging as the Brexit process still has a long way to run. While the consensus is that a cliff-edge will be avoided, it is not a given.

“After remaining in a 89-91p range for most of December, this break lower in EUR/GBP through 89p has seen a pickup in customer activity as Irish exporters look to take advantage of sterling strength against what remains a very uncertain backdrop regards the next steps in the Brexit process,” said Philip Hartley, head of FX & emerging markets, Bank of Ireland Global Markets. “Importers should be cognisant of the upside risks for sterling however we are not complacent about the current situation, significant downside risks still remain.”

Since the 2016 referendum, the UK has sunk from being one of the top-performing developed economies to close to the bottom of the pack and the risks from Brexit look like being prolonged.

The bullish case for UK economic growth is that once the uncertainty is removed, even in the case of a hard Brexit, growth will resume and asset prices, including the pound, can recover.

The problem with that view is that the consensus has proved to be horribly wide of the mark.

And financial markets have a terrible record when pricing political risk, whether it was shock election victory of Donald Trump, or Britain’s 2016 referendum.

The pound is down 16pc since the referendum and while resolving Brexit will set the tone for markets, finalisation of Brexit may well produce yet more uncertainties.

The ‘Financial Times’ reported on Friday that Britain had failed to secure most of its post-Brexit trade deals, something the government had boasted would be easy to do.

Brexit may also usher in a Labour government under Jeremy Corbyn, who promises a radical departure from the free-market policies that have held sway since the 1980s and it is he who likely holds the key to unravelling the relationship with the EU.

“Up to now, his strategy has been to sit on the political fence throughout the entire Brexit process and wait for the Conservatives to make such a mess of Brexit that he could win the next election,” said Jacob Funk Kirkegaard of the Peterson Institute for International Economics, a Washington, DC, based think tank.

“Now the polls suggest the voters are ready to reject him over his apparent passivity, if not impotence.”

Mr Corbyn has been in the British parliament since 1983, but has never been in government and has defined himself in terms of his opposition to Conservative policies and to many of those from Labour when they were in power.

His approach to the EU would be to hold more talks, stop free movement and to remain in a customs union, although many of his policies would run foul of EU rules.

With global growth slowing, and credit markets tightening, the room for tolerance of radical policies looks set to diminish.

And Mr Corbyn’s plans for higher business taxes, more government spending and a nationalisation programme may well mark the start of another downturn in the pound’s fortunes.