Broker snap: Nomura downgrades StanChart over Iran dealings

7th Aug 2012 09:58

Nomura has downgraded its rating for Standard Chartered (StanChart) from 'buy' to 'neutral' on the back of the allegations of dealings with Iran by the emerging markets lender.Following the bank's interim results, StanChart was Nomura's preferred stock in the sub-sector and on the basis of fundamental equity analysis, that would still remain the case, the broker said on Tuesday morning."However, in the face of allegations by the New York State Dept. of Financial Services that Standard Chartered Bank (SCB, US subsidiary of Standard Chartered plc) engaged in unauthorised Iranian transactions, we see material headline risk and downgrade the stock to 'neutral'."According to the notice served on SCB: "For almost ten years, SCB schemed with the government of Iran and hid from regulators roughly 60,000 secret transactions, involving at least $250bn, and reaping SCB hundreds of millions of dollars in fees. SCB's actions left the US financial system vulnerable to terrorists, weapons dealers, drug kingpins and corrupt regimes, and deprived law enforcement investigators of crucial information used to track all manner of criminal activity." However, StanChart released a statement saying that the order came as a surprise, given that it was having ongoing discussions with the agencies on the topic. The group also said that it is conducting a review of its historical US sanctions compliance.This review focuses primarily on transactions relating to Iran in the period 2001-2007, and in particular, their compliance with the U-turn framework established by the US authorities to enable ongoing US dollar trade with Iran by other countries. It said that over 99.9% of the transactions related to U-turns complied with regulation and the total value which did not follow the U-turn was under $14m.Nomura said: "STAN's fighting reply gives us some comfort on the stock and the amounts involved according to them are much smaller than the DFS order alleges. This is better than what we feared last evening. "Nonetheless we see negative headline risk and therefore retain our slightly cautious stance until we get past the August 15th hearing and then take stock of our position."By 09:58, shares were down 19.16% at 1,188.29p.BC