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Standard Chartered Fined $1 billion

bruncher
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Standard Chartered Fined $1 billion

#214020

Postby bruncher » April 9th, 2019, 11:55 pm

FT reports that the anticipated fine is one billion. Astonishing amount of money to take out of a business, and apparently it will be business (almost) as usual. How is banking so profitable?

Alaric
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Re: Standard Chartered Fined $1 billion

#214024

Postby Alaric » April 10th, 2019, 12:10 am

bruncher wrote:FT reports that the anticipated fine is one billion.


Context as reported by the Guardian

https://www.theguardian.com/business/20 ... s-breaches

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Re: Standard Chartered Fined $1 billion

#214029

Postby GoSeigen » April 10th, 2019, 12:29 am

bruncher wrote:FT reports that the anticipated fine is one billion. Astonishing amount of money to take out of a business, and apparently it will be business (almost) as usual. How is banking so profitable?


? 1bn is not very much at all. 0.1% of a bank's balance sheet if that. Imagine you had savings of £100,000. It would be the equivalent to a fine of £100. Annoying but not material to your well-being.

You wouldn't think banking is profitable at all given the almost complete disinterest in the sector on these boards...


GS

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Re: Standard Chartered Fined $1 billion

#214052

Postby Dod101 » April 10th, 2019, 7:48 am

I do not and never have held Standard Chartered so have no great knowledge of SC, but GS, do not confuse capital with earnings. This is a large sum in terms of the Bank's profits which were $2.5 billion after provisions of $900 million which may or may not have included a provision towards this sum.

In terms of the Balance Sheet it is an almost insignificant sum I agree, but I do not see banking as all that profitable given the reserves they are nowadays obliged to carry.

Dod

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Re: Standard Chartered Fined $1 billion

#214090

Postby Itsallaguess » April 10th, 2019, 10:24 am

Dod101 wrote:
In terms of the Balance Sheet it is an almost insignificant sum I agree, but I do not see banking as all that profitable given the reserves they are nowadays obliged to carry.


I don't know too much about the banking industry, or the reserves side of things, so if someone could explain in layman's terms what the impact of the new reserves-requirements are, and how that might affect future profitability, that would be great.

I had it in mind that there might be a long drag on banking profits whilst larger reserves are built up from previous levels, but I wondered if it was the case that once those reserves had been built up, then profit would then begin to flow better through the banks - if that's not the case, then can someone please explain why the new reserve-requirements will be an ongoing problem?

Cheers,

Itsallaguess

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Re: Standard Chartered Fined $1 billion

#214105

Postby kempiejon » April 10th, 2019, 11:26 am

I hold the ords and prefs and I can't see the information has made a big impact on price. Though as was said $1b is a small ratio of their balances.

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Re: Standard Chartered Fined $1 billion

#214107

Postby GoSeigen » April 10th, 2019, 11:26 am

Dod101 wrote:I do not and never have held Standard Chartered so have no great knowledge of SC, but GS, do not confuse capital with earnings. This is a large sum in terms of the Bank's profits which were $2.5 billion after provisions of $900 million which may or may not have included a provision towards this sum.

In terms of the Balance Sheet it is an almost insignificant sum I agree, but I do not see banking as all that profitable given the reserves they are nowadays obliged to carry.

Dod


Dod I think my issue was with the astonishment at the use of the word billion. In banking a billion is an everyday term. Assets are measured in trillions. In reference to a bank the word trillion should not surprise anyone, let alone billion. I'm not specifically having a go at bruncher, more the common misconception that a billion is a lot of money. You hear it on the radio constantly: whenever the word billion is spoken it is with an exaggerated emphasis and tone conveying that it is a tremendous sum when in fact it is just the standard quantum for the type of value being discussed (government spending, Brexit settlements etc).

Getting back to StanChart: banking fines in the past 10 years have typically been measured in the billions. According to Keefe, Bruyette and Woods, Bank of America alone has been fined $76 billion since the mortgage crisis. As such a fine of one billion is about as small as you can get in billions. Is the size of the fine a concern for me, a shareholder? Not really. I mean they should not be paying fines, but the amount of this fine is not going to swing for me whether or not I should be invested. The shares are a stake in the perpetual cash flows from the bank generated from its assets. Those assets are almost $700bn, reduced to $699bn upon payment of the fine. That means the longterm cashflows of the bank will decrease by some 0.14% versus the counterfactual where no fine had been paid at all; the cashflows are affected even less if the counterfactual is a more modest fine of, say $500million. It really is not material to the investment case.

Naturally if StanChart is being fined this sort of sum every few months perpetually that is an entirely different matter. However I don't lose sleep about that possibility!


GS

Dod101
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Re: Standard Chartered Fined $1 billion

#214197

Postby Dod101 » April 10th, 2019, 5:54 pm

I agree GS. It is almost par for the course that banks get fined for ever more difficult to detect 'crimes'. AS you say in banking terms a billion is relatively small beer.

To Itsallaguess, I am no expert but all I can say is that after the banking crisis there has I think been an over reaction from the authorities/regulators and every time a bank or the banking industry reaches one requirement our regulators or the EU or the US imposes ever more stringent requirements such that it must be getting very difficult to conduct banking business in any form. Now the reserves required are such that the old measure of return on equity is very modest and many banks are struggling to reach more than say around 10%. If the reserve requirements ever stabilise well we might be back to the good old days, although I doubt it.

Dod

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Re: Standard Chartered Fined $1 billion

#214218

Postby Itsallaguess » April 10th, 2019, 7:08 pm

Dod101 wrote:
To Itsallaguess, I am no expert but all I can say is that after the banking crisis there has I think been an over reaction from the authorities/regulators and every time a bank or the banking industry reaches one requirement our regulators or the EU or the US imposes ever more stringent requirements such that it must be getting very difficult to conduct banking business in any form. Now the reserves required are such that the old measure of return on equity is very modest and many banks are struggling to reach more than say around 10%. If the reserve requirements ever stabilise well we might be back to the good old days, although I doubt it.


Thanks Dod - that makes sense with regards to return on equity if there's a large (and perhaps growing...) requirement for reserve 'ballast' to be carried, but I just imagined things improving somewhat when the reserve requirements themselves had at least been met by each company.

I agree that there's always a risk of 'mission-creep' with regards to the reserves side of things, but I console myself with the view that in terms of downsides, that situation still seems much more palatable than allowing the banking industry to perhaps become 'too big to fail' again...

Cheers,

Itsallaguess

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Re: Standard Chartered Fined $1 billion

#214222

Postby johnhemming » April 10th, 2019, 7:40 pm

GoSeigen wrote:0.1% of a bank's balance sheet if that.

Is it the gross or the equity?

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Re: Standard Chartered Fined $1 billion

#214224

Postby 88V8 » April 10th, 2019, 7:54 pm

GoSeigen wrote:
bruncher wrote:You wouldn't think banking is profitable at all given the almost complete disinterest in the sector on these boards...


Hmmm, well perhaps some of us recall how bank stocks and FI got caned in the last crash, and worry about the next one which it is said will be bigger and better.
And perhaps some of us already have too much in Financials (incl STAC) even though we should know better. :)

V8

bruncher
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Re: Standard Chartered Fined $1 billion

#214867

Postby bruncher » April 13th, 2019, 4:47 pm

88V8 wrote:
GoSeigen wrote:
bruncher wrote:You wouldn't think banking is profitable at all given the almost complete disinterest in the sector on these boards...


Hmmm, well perhaps some of us recall how bank stocks and FI got caned in the last crash, and worry about the next one which it is said will be bigger and better.
And perhaps some of us already have too much in Financials (incl STAC) even though we should know better. :)

V8


Minor correction: GS wrote "You wouldn't think banking is profitable at all given the almost complete disinterest in the sector on these boards...." not me


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