Standard Chartered probes fresh allegations

BY Matt Atkins

In response to fresh US allegations over money laundering, the UK bank Standard Chartered will soon begin trawling its extensive data banks for signs of questionable activity, in an effort to avoid additional penalties. Standard Chartered clears approximately two million US dollar transactions each month. The process of sifting through the data will therefore prove a mammoth task.

The UK bank came under scrutiny in 2012, when flaws in its anti-money laundering program were uncovered by a monitor imposed by the New York Department of Financial Services (DFS). The DFS and federal authorities took separate actions against Standard Chartered at the time fining the bank a total of $667m for violating US sanctions by hiding transactions linked to Iran.

Standard Chartered is again under scrutiny from the DFS, the bank disclosed in an earnings announcement last week. A penalty of more than $100m and an extension of the monitorship is possible.

The bank's issues stem from a  problematic transaction-monitoring software system installed in the 2000s. The system is intended to flag suspect transactions, however the so-called 'detection scenarios' that tell the system what activity to flag for human review have not been properly calibrated, according to a Reuters source. Most of the scenarios have now been corrected, said the source, and efforts are underway to fix the others before the bank moves to a new system early in 2015.

The news comes in the same week that a senior executive at Standard Chartered slammed regulators for treating banks and their employees unfairly. "Banks have been asked to play the role of policing anti-money laundering … [but when] we have a lapse we don't get treated like a policeman, we are treated like a criminal," said Jaspal Bindra, who runs Standard Chartered's business in Asia.

The bank said the remarks by Mr Bindra reflected his personal views. Standard Bank's CEO, Peter Sands, said when he was presenting the bank's results, that he respected the views of regulators.

News: Standard Chartered to scour records for money laundering, with penalty at stake

Murdoch turns back on Time Warner

BY Matt Atkins

In an uncharacteristic move, Rupert Murdoch, the 81-year old chairman and CEO of Twenty-First Century Fox (Fox) has abandoned plans to buy Time Warner Inc for $80bn. A Fox statement has blamed Time Warner for the deal's implosion, saying the media giant "refused to engage with us to explore an offer which was highly compelling".

A merger between the two would have created one of the world's largest media conglomerates, significantly altering the media landscape in the US. The acquisition offer was seen as a way for Fox to stay competitive as other industry players begin to accelerate their M&A strategies.

The deal, however, has not been popular among Fox shareholders ­– the firm's share price has declined by 11 percent since the potential deal was announced – and many suspect a desire to retain shareholder approval nixed the proposal. Investors sent shares soaring by over 7 percent after Fox authorised a $6bn share repurchase programme in the wake of the deal's failure.

On the other side of the transaction, shares in Time Warner dropped by more than 11 percent after news of the withdrawal was made known. The company's board remains defiant. "Time Warner's Board and management team are committed to enhancing long-term value and we look forward to continuing to deliver substantial and sustainable returns for all stockholders," said a Time Warner statement.

Mr Murdoch's decision to walk away has shocked many. The success of the merger would have proved a career-capping masterstroke on the part of the media mogul. “We viewed a combination with Time Warner as a unique opportunity to bring together two great companies, each with celebrated content and brands," said Mr Murdoch in a statement. "Our proposal had significant strategic merit and compelling financial rationale and our approach had always been friendly.”

However, whether the deal is firmly in the grave is up for debate. Some still suspect the decision to walk is part of an attempt to drive down Time Warner's stock, before a renewed takeover attempt at a future date.

Press Release: 21st Century Fox withdraws its proposal to acquire Time Warner Inc

Portugal fights bank collapse

BY Matt Atkins

To the relief of anxious investors, Portugal’s central bank has announced measures to prevent the collapse of one of its biggest lenders, Banco Espirito Santo (BES). On Sunday 3 August, the board of directors at Banco de Portugal laid out plans for the €5bn rescue of BES, pulling it back from the brink and easing fears of contagion across Europe’s banking sector. The announcement comes days after the Banco de Portugal offered assurances that BES could raise enough money from private investors to recover from a first-half loss of €3.58bn.

The plan will see BES split into two. Problem assets will be held by the ‘bad bank’ BES. The remaining assets will be held by a ‘good bank’ – the newly formed Novo Banco, run under the supervision of Banco de Portugal. Novo Banco will be made up of BES’s core business of taking deposits and lending to home-buyers and companies. The bank will be receive an initial €4.9bn cash injection from Portugal’s bailout fund and eventually be sold off, with the proceeds used to pay back the loan.

As yet, it is unclear what will happen to the ‘bad bank’, most of which relates to other businesses in the Espirito Santo Group, including tourism, health and agriculture. Shareholders and creditors have been warned, however, that they may stand to lose all of their money.

Banco de Portugal has said customers of BES will be able to conduct transactions normally, and employees will be transferred to the new entity, which will retain the company logo.

“For our customers and staff only one thing has changed — their bank is now stronger and safer than it was before,” said Victor Bento, who will head Novo Banco. “The key uncertainties that have been hanging over the institution for some time have now been removed.”

Press Release: The application of a resolution measure to Banco Espírito Santo, S.A.

Argentine default deal falls through

BY Matt Atkins

Latin America's third-biggest economy Argentina has defaulted for the second time in 12 years, after failing to strike a deal in time to meet a midnight deadline for a coupon payment on exchange bonds.

Argentina had sought in vain to gain a last-minute suspension of a ruling by US District Judge Thomas Griesa in New York to pay holdouts $1.33bn plus interest. Judge Griesa ruled Argentina could not service its exchange debt unless it paid holdouts at the same time.

The consequences for the struggling economy are dire. Even if the default is a relatively short one, Argentina will see raised borrowing costs, further pressure on the peso, and a drain on foreign on reserves. The default will also pour fuel on the country’s soaring inflation rates.

While the current situation is bad enough, Argentina has faced worse. Today’s troubles are a world apart from the crisis of 2001, when the economy collapsed, causing millions to lose their jobs. This time around, while the country is already in recession, the country’s government is solvent. It must now attempt to extricate itself from its obligations as quickly as possible to avoid further harm to the economy.

Argentina’s failure to strike a deal with hedge funds will not have any great impact on the global economy. The country has been isolated from global credit markets since its 2002 default on $100bn. US ratings agency Standard & Poor's has downgraded the country's long- and short-term foreign currency credit rating to ‘selective default’, which will stand until Argentina makes its overdue 30 June coupon payment on its discount bonds maturing in 2033.

News: Argentina declared in default by S&P as talks fail

Russia pays price for playing dirty

BY Matt Atkins

Shareholders of the now defunct oil giant Yukos celebrated on Monday after an international arbitration panel ordered Russia to pay $50bn in damages for bankrupting the company.

The Hague court said Russian officials had manipulated the legal system to bankrupt Yukos, and jail its founder, Mikhail Khodorkovsky, for 10 years.

The court of arbitration rejected the Kremlin’s argument that the asset seizure was due to unpaid taxes, and described Russia’s actions as “devious and calculated expropriation". The Russian finance ministry has hit back, saying said the ruling was "flawed", "one-sided" and "politically biased". The ministry added that the Permanent Court for Arbitration in The Hague "had no jurisdiction to consider the questions it was given". The country is expected to appeal against the ruling.

The claim against the state was filed by a subsidiary for the financial holding company GML, once the biggest shareholder in Yukos Oil Co. "The majority shareholders of Yukos Oil were left without compensation for the loss of their investment when Russia illegally expropriated Yukos," said GML's Executive Director Tim Osborne. "It is a major step forward for the majority shareholders, who have been battling for over 10 years for this decision."

Responding to the news, Mr Khordorkovsky, who was at one point Russia's richest man, said it was "fantastic" that shareholders were "being given chance to recover assets". Mr Khodorkovsky forged  Yukos into Russia's largest investor-owned oil company following the collapse of the Soviet Union. He was arrested in 2003 and spent a decade in jail after being convicted of fraud and tax evasion but was pardoned last December. At the time of his arrest, he had been seen as a potential political rival to Vladamir Putin.

The question now is whether Russia will pay up. The Kremlin denies any wrongdoing, and payment of the fine under the ruling would prove an acceptance of defeat. Even if the state does not voluntarily accept the ruling, it can be enforced by shareholders seizing assets abroad. Shareholders of GML, however, have said that they are prepared to discuss the matter with Russia, according to a company spokesman.

News: Yukos shareholders say would talk to Russia over $50 billion compensation