After months of negotiations, Paris-based
BNP Paribas SA
) finally announced settlement of the money-laundering charges
against it. Apart from having to pay $8.97 billion (€6.6 billion)
to the U.S. regulatory authorities, the bank also pleaded guilty of
criminal charges for falsifying business records and violating the
International Emergency Economic Powers Act.
The regulators involved in the settlement are the U.S. Department
of Justice, U.S. Attorney's Offices for the Southern District of
New York and the New York County District, the Federal Reserve, the
New York State Department of Financial Services (DFS) and the US
Department of the Treasury's Office of Foreign Assets Control
BNP Paribas will be required to suspend its U.S. dollar-clearing
operations for one year, beginning Jan 1, 2015. The operations
likely to be impacted include dollar clearing on behalf of the oil
and gas finance operations from Geneva, Paris and Singapore as well
as the trade finance business from Milan and oil and gas-related
clientele from Rome.
Further, BNP Paribas will be required to ban all U.S.
dollar-clearing operations as a correspondent bank in New York and
London for two years. Additionally, the company has to terminate
services of several senior executives. However, BNP Paribas is
retaining its banking license in New York.
BNP Paribas' dealings amounting to nearly $30 billion, with
sanctioned countries including Sudan, Iran and Cuba, were under
probe. Majority of the transactions pertained to Sudan, while quite
a number of fund transfers referred to Iran and other sanctioned
BNP Paribas allegedly used regional overseas banks to route
transactions with the sanctioned countries and deliberately
concealed such transactions from the U.S. Treasury Department's
screening system by various methods.
Implications of the Settlement
BNP Paribas had already provisioned for the above-mentioned
settlement. Nevertheless, the bank will have to bear an additional
charge of $7.9 billion (€5.8 billion) in second-quarter 2014.
Further, BNP Paribas anticipates its fully loaded Basel III common
equity Tier 1 ratio to be approximately 10% as of June 30, 2014.
The expectation is based on the assumptions that its
second-quarter results will be impressive and it would continue
paying dividend at the same rate as in 2013 (€1.5 per share).
Although BNP Paribas is one of the stronger European banks, the
overall macroeconomic scenario, coupled with the above-mentioned
penalty, could weigh on the bottom-line results. Also, we believe
that the business sanctions imposed on the company will likely put
pressure on revenue growth owing to client exodus.
With settlement talks doing rounds for quite some time, the Zacks
Consensus Estimate has been revising downwards over the last 30
days. Hence, BNP Paribas currently has a Zacks Rank #4 (Sell).
Other Banks on the Radar
The U.S. regulators are now shifting their focus on investigation
of similar allegations against other global banks. According to
familiar sources and other public disclosures, Credit Agricole SA,
Societe Generale SA,
Deutsche Bank AG
) and Citigroup Inc.'s Banamex unit in Mexico are among those being
probed for money-laundering or sanctions violation.
Apart from BNP Paribas, the U.S. subsidiaries of many global banks
including those of
HSBC Holdings plc
), ING Groep NV and
) have already settled similar charges brought by the
However, the actual timing of the settlement or possible legal
actions for the banks being probed is uncertain.
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