Successive European scandals shock Chinese banks
Rapidly escalating scandals involving several major international banks in recent months have shocked not only shareholders but also Chinese banks that consider the likes of HSBC and Standard Chartered Bank among the best models of internal control and risk management.
This week, London-headquartered Standard Chartered became the latest financial institution to be caught up in a series of apparently illegal transactions, this time involving Iran. Standard Chartered yesterday rejected allegations from US regulators that it hid US$250 billion in transactions with Iranian financial institutions for almost a decade in violation of American sanctions.
Just a few weeks ago, HSBC, Standard Chartered's bigger rival that was recently accused by the US government of helping drug lords in Mexico launder money, apologised to its investors for compliance failings and set aside more than US$2 billion to cover the costs of fines and redress.
'Of course we are shocked,' said a veteran Chinese banker who has a business relationship with both British banks.
'Honestly speaking, HSBC used to have a pretty good image among foreign banks in China. Many Chinese banks, including us, always described HSBC as a good model to learn from,' said the banker, who declined to be identified as he was not authorised to speak to the media. 'But now, I guess things have changed a lot.'
Despite Standard Chartered's immediate denial of any wrongdoing, its Hong Kong-listed shares sank nearly 15 per cent yesterday to close at HK$160.10 apiece on investor fears that the US allegations could have a long-term negative impact on the bank's business in the United States.
'The series of bad macro events, from Lehman Brothers [in 2008] to now, Greece, are very much to do with asset price bubbles and banks facilitating those bubbles,' said Woon Khien Chia, head of Asia local markets strategy at the Royal Bank of Scotland in Singapore. 'Hence, regulators and policymakers are scrutinising this sector.'
JPMorgan Chase, considered a well-run bank, shocked markets in May with news that lax controls on a trading unit would cost the New York bank billions of US dollars in losses. Barclays has been involved in an unfolding scandal related to the rigging of the London Interbank Offered Rate, or Libor, which has triggered the resignation of that bank's chief executive. Last month, three of Britain's biggest lenders - HSBC, RBS and Lloyds - were named among 17 banks and one broker under investigation in the Libor scandal.
It's all bad news for investors already worried about the risk that the euro zone might collapse if Greece, or even Spain, exits. The news about Standard Chartered just made it 'another bank like HSBC' that had to worry about fighting its own regulatory problems 'in addition to the global economic uncertainties that everybody else is facing', a financial industry analyst said.
Joy Yang, chief economist for Greater China at Mirae Asset Securities in Hong Kong, said the recent spate of scandals had exposed the weakness of financial industry regulation in Europe and the US.
'That will make Chinese policymakers more determined to seek their own Chinese way to regulate, reform and liberalise their financial sector, rather than follow the so-called best international practice in those advanced countries,' said Yang, a former economist at the International Monetary Fund in Washington before joining Mirae.
China launched its banking industry reform in 2002. Since then, many Chinese banks have teamed up with foreign partners, partly to learn from them. For example, HSBC is a 20 per cent shareholder of the Shanghai-based Bank of Communications, which hopes to improve its risk management and corporate governance through the association with HSBC.
Standard Chartered also has a partner on the mainland, Bohai Bank, a mid-sized state-controlled lender in Tianjin.
The amount, in US dollars, that HSBC's Mexican operations moved into its US operations from 2007 to 2008, the US Senate says