WHY DO THEY KEEP DOING IT TO THEMSELVES?

The banks.  Standard Chartered, the British bank that was created with the merger of the Standard Bank of South Africa and the Chartered Bank based in India, has fallen upon hard times.  It was said of the two institutions that the Standard guys thought they were gentlemen and the Chartered guys thought they were bankers so the merger should have been a roaring success.  And you know what?  For a long time it was.

Stan Chart did a few things really, really well.  They knew the markets in which they were located.  They knew trade finance.  They knew local corporates.  They had really good retail bankers...I mean they even issued currency in Hong Kong along with The Bank.  They may a ton doing what was known in the trade as "exotics"--currencies like the Baht, or Sing Dollar or Malaysian Rupee and they were in the place everybody wanted to be in...the developing nations of Asia...until nobody wanted to be there any more.  They rode out the 2007 crash like a surfer on a board to the point where they went from everybody's acquiree to the possible savior for some big, troubled institutions.  And then the world turned around.

One thing Stan Chart was not was sophisticated.  What they did they did really well but like so many other institutions what they didn't do well was the thing that jumped up and bit them.  They ran a stock business in Hong Kong along with a small capital markets business.  When Hong Kong was the Wild West that was one thing but when the big boys moved in what was little more than a bucket shop hadn't a chance.  Being one of the outlets to the west for China was super; then suddenly China became the West.  With a great deal of the attitude of its Standard Bank forebearers still ingrained, these  were good bankers but hardly "gents" as the City would call them trying to operate in a world where one had to at least appear to be a Gent and where you certainly had to know the thugs in the regulatory business masquerading as "Gents."  They never did.

Things haven't been going well for the past few years for Stan Chart but then again, it hasn't been a great time for banks.  But, as we have seen, one can overcome credit issues and management issues.  But you have to be able to work with the people running things nowadays or else you can get yourself in serious trouble.  That they found hard to do, and the one, overriding, horrible mistake that they made was to make public what the views that the bank had harbored for years; they really don't like the United States as a regulatory venue and resented being forced to be here because there was no alternative to the business in which they found themselves.  If you are going to engage in world trade, necessitating correspondent banking relationships, you have to have a clearing ability in the currency of trade, the U.S. Dollar.  As the great Liverpool striker Ian Rush once described his role, "You gotta be there."  They were and they didn't like it.

As a British institution, Stan Chart could go places off limits to U.S. banks; like Iran.  And so it came to pass that they got caught fiddling with the very strict regulations regarding dealing with Iran and worst yet, tried to cover it up.  Worst of all they got caught and to conclude the catastrophe, an Executive Director of the institution was quoted as remarking, "Who the hell is the U.S. to tell us...we can't deal with Iran?"  That thought may be deeply held in your heart but it must never reach your lips.  An action that might have cost them simply a lot of money in fines suddenly became an action that would be ingrained in the minds of regulators until death did it part.  This team of management would receive no breaks nor the benefit of any doubt.  They were dead men walking as the business of the institution went further south no doubt because of the overall economic climate in their locus but in addition,  as a result of clients simply moving away from what was obviously an institution not in good favor.

Today, the inevitable occurred with the announced  resignation of the CEO Peter Sands and his replacement with Bill Winters, the former head of investment banking for J.P. Morgan now running an asset management fund in London.  His reputation is one of a very, very smart, tough, skilled manager long thought to be the next CEO of Morgan until his vision clashed with that of Jaime Diamond.  Exit Winters.

And so I come to my question of the day.  Peter Sands, despite being a former diplomat, couldn't deal with the regulatory concerns facing his institution.  Bill Winters' reportedly loved by regulators, vision that clashed, was that commercial/retail banks didn't work with investment banks.  Take a guess at what Winters dreamed of J.P. Morgan.  So why do you appoint as head of a commercial/retail bank whose business is Emerging Markets a guy who doesn't like commercial/retail and apparently doesn't know a lot about emerging markets, especially Asia, where---can we talk--neither did J.P.Morgan.  OK he's smart and I wish him well, but boy, is this one going to be under a microscope.  Is that is what is needed?  Then again, from the standpoint of providing copy,  YES!  Go get 'em, Bill.

AS PREDICTED

The WSJ had as its lead story today the fall-out from the thug Lawsky's actions against Standard Chartered and it wasn't pretty reading.  The Brits are screaming mad as well they should be and talks of retaliation are in the air.  I would rather not be the CEO of a non-American bank these days as I would have no idea to whom to listen and in what manner the game is being played.  There are far too many regulators and many are not professionals but rather political thugs looking to score quick points.  In the not-too-distant-future look for legislation placing the regulation of all foreign banks in the hands of the Feds or the Federal Reserve.  This being an election year and Cuomo and Lawsky being Democrats the Administration will give this one a pass but no matter which party wins in November, international pressures--and not just from Europe--will bring about the change in governance of which I am speaking.  The State of New York, having been run for years by political hacks may have just killed the goose with the bright, shiny egg.

Now remember my writing at one point that if you wish to learn the intentions of this Administration simply read the New York Times on a daily basis where you will find in addition to "All the News That's Fit To Print' (in accordance with our political philosophy) what to expect from Washington.  This morning, once again shilling for the Administration, the NYT let it be known that Mr. Corzine will probably skate on any criminal prosecution for his role in the MF Global disaster.  No kidding.  After having this thing slow-walked by his former partner, now regulator, Gary Gensler, treated to the astonishing--or so it would appear--actions of the Federal prosecutors who did not grant immunity to the company's treasury official who authorized the transfers without even asking for a proffer and not even being questioned in regard to his 10-K statements, Johnny-boy is happily trading his family money seemingly without a care in the world.

To say this stinks is an understatement but let us remember that Corzine was the no.1 fund raiser for The Leader and was the odds-on favorite to succeed The Suit in the second Obama administration if there is to be one.  Probably the only good thing to come out of this may be the realization that the piece of garbage known as Sarbanes/Oxley isn't worth the paper on which it is printed.  Keep in mind that if one signs a 10-K it makes no difference if a material misstatement of fact is deliberate or accidental; sign it and you're toast.  It's a joke, can it and while one is at it perhaps the repeal of Dodd/Frank can be accomplished as well.  This dual act of contrition may mark the finest moment in financial regulation since...hold on, I'll have to back to you tomorrow on that.  Then again, the research may take a long time.

STAN CHART

Standard Chartered is the result of a merger; the Chartered Bank, originally domiciled in Africa and the Standard Bank of Asia and points East.  It was said that the Chartered Bank was run by gentlemen who thought that they were bankers and the Standard Bank by bankers who thought they were gentlemen.  It was testty in the early days and downright ugly at times but eventually, the non-gentlemen won out and have run the place for a long time.

I will say one thing about the management: they know what they don't know and what they don't like and that is a very good thing indeed.  They decided in the early 1990ies that they wanted no part of the new "flash" banking that everyone was into but would stick with what they knew best; correspondent banking in emerging markets, trade banking, "exotic" currency trading and local corporate banking, again in emerging markets.  They were/are very good at what they choose to do.  

They are also smart enough to know their place.  They are very big in Hong Kong but they never take on The Bank directly.  They keep excellent relationships with local authorities and avoid the Best New Idea of the day.  Little derivative trading, no CDSs, no MBOs.  Just blocking and tackling, three yards and a cloud of dust, manage relationships carefully and  just make money.  

It is, however, an institution with a chip on it's shoulder.  It is defyingly Red Brick; if you are an Old Etonian you speak of it only in hushed terms.  It remains the product of the Empire with little use for London and certainly none for the upstarts in the Colonies.  It therefore came as no surprise that the contempt for American regulation was revealed in such stark terms this week nor the defiance in the manner in which Stan Chart apparently deliberately attempted to evade the spirit and the law in regarding to their dealing with Iran.  Unfortunately, and there are many ways for this to occur, there is a better than even chance that in this, an election year, the bank might lose it's American liscense.  If that were to occur it would be devastating; indeed, given their lines of business, especially correspondent banking, it could threating the existence of the bank itself.

What they are accused of doing, if true, is quite disgraceful.  In my mind it is worse than any of the seemingly weekly scandals that emerge regarding the financial landscape other than perhaps MF Global which is pure theft.  But I am also troubled with one aspect of this and the more I think about it the more troubled I become.  Forgive me as I take a trip down memory lane to show youwhat I mean.

Many years ago there was a Bank by the name of Libyan Arab Foreign based in Tripoli that was the international agent for the Gaddafi regime.  All of it's dollar business went through one New York bank and keeping in mind that the currency for oil is dollars, there was a lot of business.  Gaddifi, nut that he was, also felt that it was his duty to give aid and comfort to every terrorist group actively engaged against western values from the IRA to the Red Brigades to the Jackel, to Castro and everything in between.  Of course various agencies around the world whose job it was to engage these international killers knew this and since there was only one New York  institution with whom Libyan Arab delt, an elaborate "follow the money" operation was set up.  It was immensely successful in identifying the participants in this world-wide terrorist network to include the involvment of Soviet client states.  

I find it hard to believe that many of these same players were unaware of Stan Chart's activities given the sophistication of today's intelligence organizations.  And so I ask myself why in the hell was the State of New York the whistle blower in this situation and was there no coordination between the state and the Feds who after 48 hours maintain a stoney silence.  Was something important blown here?  And that's why I'm troubled in addition to other issues about which I shall not speculate.  I really do hope I'm wrong but I wonder if we shall ever really find out.