BOSTON Aug 7 (Reuters) – Fallout from Standard Chartered
Plc’s alleged transactions with Iran could quickly
become a liability to top U.S. custody banks, Bernstein Research
analyst Brad Hintz said on Tuesday.
Hintz said British-based Standard Chartered is an important
agent bank for U.S. custody banks such as Bank of New York
Mellon Corp, JPMorgan Chase Co and State Street
Corp. Standard Chartered provides the banks important
access to central securities depositories in mainland Asia and
Africa.
Hintz said in a research note that the U.S. custody banks
rely on extensive sub-custodian networks to pass on economies of
scale and scope to big institutional clients.
“If a sub-custodian were to be found guilty of an internal
conspiracy to hide prohibited transactions from U.S. regulators,
U.S. global custodial banks exposed to that sub-custodian may
fall under increased scrutiny from their fiduciary clients,”
Hintz said in his note.
“Among the more severe consequences, exposure to Standard
Chartered could result in reputational damage and potentially
negatively impact the ability of a U.S. global custodian to win
new mandates from public funds and other fiduciary clients.”
Meanwhile, some sub-custodians could benefit from the
upheaval at Standard Chartered if U.S. custody banks seek
replacements. Hintz said potential beneficiaries include HSBC
Bank Plc, Deutsche Bank AG and Citigroup
Inc. He also said Standard Bank Group Ltd, which
split from Standard Chartered in 1987, plays a big role in
Africa for BNY Mellon and could pick up more business.
The New York State Department of Financial Services said on
Monday that Standard Chartered “schemed” with the Iranian
government, which is subject to U.S. sanctions over its nuclear
program and hid 60,000 secret transactions to generate hundreds
of millions of dollars in fees over nearly 10 years. The
regulator has threatened to tear up Standard Chartered’s state
banking license for allegedly hiding $250 billion in
transactions tied to Iran.
Hintz said JPMorgan and State Street each have extensive
operating reliance on Standard Chartered as a sub-custodian in a
number of markets, such as India, Hong Kong, Thailand, Ghana and
Zambia. BNY Mellon has exposure in Bangladesh and Taiwan, Hintz
said.
JPMorgan and BNY Mellon declined to comment. State Street
was not immediately available to comment.
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