Breakingviews: Standard Chartered has some explaining to do on settlement

Employees of Standard Chartered leave a branch of the bank in central Seoul August 9, 2012.

(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)

BEIJING Aug 15 (Reuters Breakingviews) - What price a quiet life? Standard Chartered (STAN.L) says $340 million. That's how much the UK bank paid to call off an assault from New York's Department of Financial Services, which had accused it of sanctions-busting trades. Now here's another question: why would Standard Chartered pay so much, when it had loudly proclaimed that the suspect transactions amounted to just $14 million?

Standard Chartered's shareholders may be too relieved to ask. The shares rose as much as five percent in Hong Kong (2888.HK) on the settlement, which also involves installing a "monitor" at the bank's offices. The UK-based lender's market capitalization is still around $5 billion less than before the DFS called it a "rogue institution" on August 8, but at least the DFS now looks like a rogue regulator in retreat.

Still, these numbers don't obviously stack up. Dutch bank ING paid a settlement of $619 million for around $1.6 billion of similar transactions. Barclays paid $298 million for transactions of around $500 million, albeit those settlements were to different agencies.

More puzzlingly, the DFS says both sides agreed the transactions at issue were $250 billion, a number Standard Chartered originally denied.

Of course, a fierce defense would have been risky for Standard Chartered's shareholders. The DFS could be a powerful enemy and the loss of access to the U.S. clearing system - the ultimate penalty - would have been a grave blow. But then again, in most worlds other than banking, to make unjust and untransparent payments in return for being left in peace would sound like giving in to blackmail.

There is another possibility, that Standard Chartered got its numbers wrong. But that would call the credibility of its key executives and chairman, John Peace, into question. For now, it isn't saying.

Shareholders may be reasonably happy with this settlement, but they're not always the best judge of what's right. Paying to be rid of an angry regulator may make business run more smoothly, but sets a bad precedent and makes the economy less efficient. If $340 million is the price of a quiet life, Standard Chartered now needs to explain why it's worth it.

CONTEXT NEWS

- Standard Chartered settled accusations it had facilitated illegal trades for Iranian clients for $340 million on August 14, according to the New York Department of Financial Services. The city's regulator had accused Standard Chartered of transactions contravening sanctions against Iran in a filing released on August 6.

- Along with the civil penalty, Standard Chartered agreed to host a monitor for two years who would report directly to the DFS, as well as allowing examiners to be placed onsite at the bank.

- The regulator said both sides had agreed that "the conduct at issue involved transactions of at least $250 billion". Standard Chartered had previously argued that only $14 million trades were potentially suspect. On August 15 the bank said it expected detailed terms of the settlement to be concluded shortly.

- Standard Chartered's Hong Kong-listed shares traded up 3.6 percent on August 14 to HK$171.70, compared with a closing price before the regulator's announcement of HK$188. That equated to a loss of market capitalization of HK$39 billion ($5 billion).

- NY regulator's statement: link.reuters.com/faq99s

- StanCharts rebuttal: link.reuters.com/mas99s

- Regulator's original filing: link.reuters.com/kas99s

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(Editing by Edward Hadas and David Evans)