Things Are Going From Bad To Worse For Standard Chartered PLC. Is It Time To Bail Out?

Standard Chartered (LSE: STAN) is in trouble once again with US regulators. And this time it could be the end of the road for the bank if it is found guilty. 

The current troubles stem from issues that took place around nine years ago. Standard Chartered was found guilty by US regulators of breaching US sanctions against Iran, for which it was forced to pay nearly $1bn in fines.

After settling with the authorities the first time around, Standard promised to stop working with Iranian and Iran-connected companies. However, new evidence suggests that the bank continued to seek business with Iranian clients after promising regulators it would stop. 

Unfortunately, this isn’t the first time that Standard has misled regulators to boost business. Back in 2012 the bank was fined $667m by US regulators and signed a deferred prosecution agreement for violating sanctions on Iran, Sudan, Libya and Myanmar. With such a checkered past behind it, some analysts have speculated that, if the latest set of accusations has some weight behind them, Standard could be shut out of the global financial markets. 

Shut out 

Standard Chartered is currently being investigated by the US Department of Justice, the Manhattan district attorney, the Federal Reserve, the New York Department of Financial Services (DFS) and the New York attorney general’s office, regarding potential new breaches of sanctions .

And if Standard is found guilty of violating sanctions, it is possible that regulators could suspend the bank’s dollar-clearing rights, which would be a crippling blow to Standard’s ability to conduct cross-border deals. 

Such as drastic move is rare, but Standard has fallen foul of regulators so many times in the past that the authorities might decide to make an example of the bank. Back in 2012, the DFS accused Standard of being a “rogue institution“, which left the US financial system “vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes“.

Time to bail out

Standard is being buffeted by all sides. A slowdown in Asia has knocked the bank’s income and a spike in losses on legacy loans is eating away at Standard’s capital reserves. The bank has already been forced to cut its dividend payout to try to save cash. During the first-half of the year, Standard was forced to write off $1.7bn worth of loans. 

What’s more, as I’ve written before, City analysts have estimated that around 20% of Standard’s total loan book is linked, directly and indirectly, to the commodity market. As commodity prices continue to slide, Standard’s financial situation could be deteriorating almost every day.

The bottom line

Overall, it’s difficult to find any reason to invest in Standard. If the bank is convicted of misleading regulators, it could face crippling sanctions. At the same time, the group’s balance sheet is coming under enormous pressure and profits are sliding. It could be years before the bank returns to growth.