Confidence in the European banking system has been battered by the frank admission of the giant Anglo-Dutch oil company, Shell, that it is pulling funds out of the region because of the risks associated with the eurozone’s debt crisis.
"There's been a shift in our willingness to take credit risk in Europe. The crisis has impacted our willingness to afford credit," Shell’s chief financial officer, Simon Henry told the Times.
Henry said the company had to keep some money in Europe to fund its operations, but is keeping the bulk of its reserve liquidity outside of the eurozone to avoid the growing economic risks. Shell, he said, would rather keep its $15 billion of cash in US bank accounts or invested in US Treasuries.
Henry also signalled that Shell is looking closely at the robustness of its European supply chain. "Can banks that finance our suppliers continue to finance them?” he asked.
Signs that major global companies are limiting their exposure to Europe comes at a time when the reputation of European banks is under fire, with Standard Chartered now under investigation in the United States for "scheming" with the Iranian government to conduct secret transactions worth at least $250 billion.
Benjamin Lawsky, superintendent of the New York State Department of Financial Services, has launched an investigation into Standard Chartered Bank for "apparent grave violations of law and regulation".
New York’s financial regulator alleges that for almost ten years, Standard Chartered "schemed with the government of Iran and hid from regulators roughly 60,000 secret transactions, involving at least $250 billion”. The bank, it says, reaped "hundreds of millions of dollars in fees” from these transactions.
Standard Chartered’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."
The watchdog claims that for nearly a decade, the bank moved "at least $250 billion” through its New York branch on behalf of Iranian clients, including the Iranian central bank, that were then subject to sanctions. It then "covered up” evidence of the deals by falsifying wire orders and stripping out necessary data.
In 2006, a senior US executive of the bank voiced his concerns that the transactions could cause "very serious or even catastrophic reputational damage” to the bank, as well as "serious criminal liability” for the staff involved. However, it is claimed that the response he received from London was "You [strong expletive] Americans. Who are you to tell us, the rest of the world, that we’re not going to deal with Iranians.”
The watchdog has threatened to revoke Standard Chartered’s licence to operate in the state. The bank has to "demonstrate” at a hearing on August 15 why it should be allowed to continue operating in New York.
The allegations against Standard Chartered come after British bank, HSBC, last week revealed that it had set aside $700 million to cover the cost of US fines for money laundering. In early July, the US Senate published a damning report about the bank’s alleged failure to prevent Mexican drug cartels laundering money through HSBC accounts in Miami.
Meanwhile, the Libor scandal is continuing to widen with the Dutch central bank overnight confirming that it was examining whether Dutch banks participated in rigging the Libor and Euribor rates, which are used as the benchmarks in hundreds of trillions of global financial transactions.
Earlier, the Financial Times reported that a trader at the centre of the Barclays rate-rigging allegations communicated with his counterparts at the Dutch bank Rabobank about trading positions related to Euribor (the eurozone equivalent of Libor).
Last week, the giant German bank, Deutsche, was drawn into the Libor scandal after it confirmed that a "limited number” of its employees had been implicated in rate-rigging.
The Libor scandal first erupted in late June when the British bank Barclays agreed to pay £290 million fine ($US450 million) to settle an inquiry by US and UK authorities that revealed the bank’s traders blatantly manipulated Libor to disguise the high cost of the bank’s own funding and to boost the profits of certain traders. The scandal has already claimed the scalps of three of Barclay's top executives.