Investors carved HK$67 billion off Standard Chartered Bank yesterday, or nearly a sixth of its stock market value, despite the bank's quick denial of US regulator claims it engaged in illegal dealings with Iranian financial institutions.
The UK-based lender's shares, which usually trade at a premium to its peers such as HSBC, plummeted 14.89 per cent, or HK$28, to close at HK$160.10 each.
The stock fared even worse in London, plunging 16.76 per cent to close at 1,223.57 pence. Between Monday morning trade in New York and lunchtime in London yesterday, the stock lost a quarter of its value, or about HK$112 billion.
The New York State Department of Financial Services said on Monday that Standard Chartered conducted at least US$250 billion worth of transactions with Iranian financial institutions from 2001 to 2010.
It alleged the bank falsified business records and filings and evaded US sanctions on Iran.
It estimated the number of secret transactions to be 60,000 and said the bank 'left the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes'.
One of the three Iranian banks Standard Chartered is accused of having illegal dealings with is state-owned Bank Melli Iran, whose UK subsidiary received a banking licence for a local office from the Hong Kong Monetary Authority in 2005. The other two banks are the Central Bank of Iran/Markazi and Bank Saderat.
'SCB operated as a rogue institution,' the department wrote in a regulatory order. It said Standard Chartered reaped hundreds of millions of dollars in fees from the transactions.
According to the regulatory order, a Standard Chartered director hit back: 'You ... Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians?'
The department added that Standard Chartered's US unit may be suspended from doing business.
Adam Chan, an analyst at CCB International in Hong Kong, said: 'People can't even quantify what the losses will be. That's the scary part.'
He said the premium the market ascribed to the bank for goodwill had evaporated in a single day
But Bank of America Merrill Lynch analysts cautioned: 'At this stage we have only heard one side of the story. It is not clear whether transactions identified by the order were in violation of US sanctions law.'
Standard Chartered, which generates most of its business in Asia, Africa and the Middle East, had been one of the few banks that steered clear of scandals and delivered consistent profit growth for a decade.
Yesterday the bank 'strongly rejected the position and portrayal of facts' made by the New York regulator and said the total value of transactions that did not follow the so-called U-turn regulations was under US$14 million.
U-turn transactions, which allowed US banks to process payments involving Iran that begin and end with a non-Iranian foreign bank, were revoked by the US Treasury Department in late 2008 on US national security grounds.
Standard Chartered said 99.9 per cent of the transactions relating to Iran complied with U-turn regulations, and that it ceased all new business with Iranian customers in any currency more than five years ago.
The regulator also said accounting firm Deloitte & Touche had 'intentionally omitted critical information' in its reports to regulators to aid Standard Chartered. Deloitte said it had performed its role as independent consultant properly and had no knowledge of any alleged misconduct by bank employees.