Big Banks and Money Laundering
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Having weathered the first part of the storm surrounding the manipulation of LIBOR, a number of London-based banks are facing charges in the U.S. for other issues as well. HSBC (NYSE: HBC) has had troubles over laundering drug and terrorist money and now Standard Chartered’s problems with the State of New York, which ended quickly with a $340 million fine to fill the coffers of cash-strapped New York, have secured a headline to be used throughout the campaign season. The net effect of this is to pad the re-election and political careers of those doing the prosecuting.
Standard Chartered’s harassment by a little-known US regulator New York state department of financial services (NYDFS) for hiding £160bn worth of transactions for violating sanctions against Iran is a perfect example of this. And while the bank denies such charges, they paid to keep their banking charter intact.
It’s all part of a bigger picture and boils down ultimately to money and fame. A little known regulator going after Standard Chartered, with the backing of a powerful Senator (Chuck Schumer), should be viewed as a move to gain reputation. In the U.S., elections, outside of presidential ones (which seemingly never end anymore), begin in earnest 3-4 months out from Election Day. The timing on these Standard Chartered and HSBC investigations is dubious at best. There are no coincidences in American politics. It all runs according to a particular script whose narrative is intended to confuse and control.
It is important for investors to be aware of this effect. In the end the banks, even British or German banks, of a sufficient size will not be torn down on the altar of U.S. politics. They may be beaten, tossed-aside and shaken-down but they are still part of the too-big-to-fail consortium of banks. So, any hit to their stock price over this type of activity should be looked at as a trading opportunity.
Other foreign banks, including Barclays (NYSE: BCS), ING, Credit Suisse and Lloyds TSB, have paid US state and federal fines to overcome sanctions without the case going to court something similar to plea bargaining. U.S. banks work the same way, with the SEC and the CFTC loath to prosecute, preferring instead to levy fines in exchange for no admission of wrong-doing. The $25 billion Robo-Signing settlement, of which Bank of America (NYSE: BAC) was the largest offender, is a classic example of this. The problem was one of law going back to the Magna Carta, but that was voided because the State Attorneys wanted something to be settled before the election cycle started. This ensures that everyone keeps their jobs; the headlines are filled with big numbers the chattering class can discuss until something bigger comes along to fill the 30 minute news cycle.
Owing to its shattered economy, the US has been losing its charm as the global financial center. So going after foreign banks could be a possible reason to assert the fact that it still holds the lost clout to rule the global financial institutions. In a sense, the U.S. is going to go down swinging as capital flows from West to East. Also, going after the foreign banks will help it cut potential competition for the global financial center, which currently is led by London and Tokyo.
Giving a free pass to Goldman Sachs (NYSE: GS) against criminal charges for their selling fraudulent CDOs in the run up to the financial crisis again highlights the immense power the politically influential command in the US. Even after a report prepared by Senators Carl Levin and Tom Coburn two years ago clearly proved Goldman was involved in misleading investors over these financial instruments, the DOJ and the SEC let the investigation end without any further action. This will create an encouraging environment for others to act similarly, continuing to allow moral hazard (along with risk) to build up within the banking system, which now has yet another example that even if they do commit fraud, misled investors, and waste billions of taxpayer dollars in the process, they are ‘too big to jail.’
Goldman Sachs was the largest contributor in the last elections supporting Obama, but this time, the majority of their contributions are going for Romney. Maybe they are backing a candidate that is expected to win or maybe this is just a good hedging strategy, because they know that Romney will be harder on them if he wins and they don’t back him.
The 23 companies that received a billion or more in TARP funds as bailout contributed around $1.4 million towards the presidential election last year. GE (NYSE: GE), which received a bailout in 2008 that is valued at somewhere between $140 and $187 billion, gave away $190,000 to various candidates in the last election, and spends far more than that lobbying to ensure them a steady stream of government defense and alternative energy projects.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool owns shares of Bank of America. Motley Fool newsletter services recommend Goldman Sachs Group. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.