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Thursday, 20 November 2014

The smell test of the StanChart settlement and Greek blackmail

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Let’s pop the corks and ring the church bells! Standard Chartered has settled with the New York regulators for US$340m and we can all get back to business again. Hang on! Could somebody please hit the “pause” button and rerun that bit for me. US$340m? If the bank is innocent, as it claims, that’s a hell of a lot of money. If it is guilty as charged, it’s a snip. I’m sorry but something here doesn’t add up.

Anthony Peters, SwissInvest Strategist

The US$340m is in fact neither here nor there and appears to me to be something of a compromise. I don’t like the idea of settling for something in the middle. Either StanChart is guilty or it is not.

If it is, as they say, a bit pregnant, then I think we have a right to know. Given the speed and the secrecy around the settlement, it has an uncanny smell of something akin to good old New York Mafia protection money being paid. “You giva me dee money, I don’ta blow upa yer business!” It’s what is called racketeering.

I’m sure that I’m wrong, but I was brought up to believe that justice does not only have to be done but it has to be seen to be done too. I’m not sure that I can see the justice in this one

Now, far be it from me to accuse anybody of anything but I struggle to get my head around what has been resolved between the regulator and the alleged perpetrator, should anything have been resolved at all. I’m afraid that I see more Meyer Lansky than I do Eliot Ness.

I haven’t added up how much foreign banks have paid in fines in the US in the past 12 months but the US$340m given by StanChart is not one of the largest. The DFS, so I gather, was looking for US$500m. I’m not a lawyer – thank heavens – and my understanding of the law is limited but I can’t see how an agency could have been setting itself a financial target before the charges have been formally filed and the case has been heard by a court of law.

That would mean that it was prepared for an out-of-court settlement before it had made its allegations known and to my tiny little mind that smacks of nothing less than premeditated blackmail.

I’m sure that I’m wrong, but I was brought up to believe that justice does not only have to be done but it has to be seen to be done too. I’m not sure that I can see the justice in this one.

Speaking of extortion…

Meanwhile, on the subject of blackmail, the Greeks are back with renewed proposals as to how they will not default if they are given more money. There are a lot of numbers swishing around but the ones which stand out, as at the latest standing, are that if the government promises to cut €11.3bn out of its deficit over the next two years and is lent another €20bn in exchange, then it will not default.

In the two years since ex-PM Papandreou stood up in Berlin and threatened to default, not much has changed and Athens continues to play the “It will hurt you more than it will hurt us” card. However, it must begin to be careful. The rhetoric in Germany is hardening. Just 12 months ago, no serious politician would have been caught dead suggesting that there was any other way than marching forward shoulder to shoulder.

Other than by a few rogue commentators – UKIP’s Nigel Farage to the fore – suggesting that all might not work out quite the way one would like it to was tantamount to high treason. So Greece is asking for a further deferral of its austerity targets which, given that the economy is still contracting at an annualised rate of near on 7%, is not wrong – or at least not for Greece.

We all know, if we’re honest, that the country will never be able to pay back what it has borrowed, is borrowing and will no doubt have to borrow in the future. The cost of maintaining its eurozone membership has, for many, already been too high but now the political class in Berlin is getting the message too. The people who pay their salaries and pensions, the German taxpayers, are becoming impatient.

I wrote some time back that sooner or later one of the repeated challenges to government actions in front of the German Federal Constitutional Court in Karlsruhe will stick. There is currently one pending with respect to the constitutionality of the Fiscal Compact and the European Stability Mechanism, the ruling over which is due on September 12.

US perk

The US economy might be looking more perky – Advanced Retail Sales for July which reported yesterday at +0.8% (+0.3% forecast) knocked the cover off the ball – but the risks of the eurozone crisis taking another turn for the worse into the autumn remain strong.

On that basis, risk assets are still for buying and for selling but not for owning.

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