March 21, 2013 6:50 pm
Very few western banks have come through the financial crisis unbruised. Until August last year, Standard Chartered – the British bank with an emerging markets bent – was one of them.
All the while, however, US investigators had been probing StanChart’s behaviour in the run-up to the crisis, convinced that the bank had breached US sanctions bans on dealings with Iran. When the affair exploded into the open last summer with a fine that ended up costing $667m, investors were shocked. The shares lost more than one quarter of their value.
Investors now are inured. On Thursday when the bank’s chairman, Sir John Peace, issued a grovelling apology for having played down the seriousness of the sanctions breaches in recent public comments, contravening the terms of its US settlement in the process, the shares did not budge.
Such investor calm is misplaced – and redolent of the dismissive attitude taken by the bank itself when dealing with the US authorities over the sanctions issue last year.
StanChart had always maintained the scale of the wrongdoing was vastly exaggerated, but ultimately paid a fine to ensure it retained its all-important New York banking licence. The scale of the fine appeared in part to be punishment for the proud tone that the bank took towards the authorities.
With his offhand remarks earlier this month, Sir John has repeated the offence – and made the bank look amateurish as well as hubristic. Had he failed to issue the retraction to the satisfaction of US regulators, they could have ripped up last year’s deal and indicted the bank.
The affair should be a reminder to companies and their investors that impressive financial performance can be put at risk by unpredictable factors, in particular politicians and regulators who have the upper hand over banks these days. It also raises some important issues of governance. Although no one has called for Sir John to quit over this affair, it has shone a light on his old-fashioned City of London portfolio career. Alongside his handsomely rewarded post at StanChart, he holds down two other chairmanships. That is against the spirit of guidelines and calls into question his ability to do all three jobs properly.
Like JPMorgan, where Jamie Dimon is determined to hold on to an outmoded dual role as chairman and chief executive, StanChart would do well to modernise if it is to continue to thrive.
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