French bank slapped with fine for deals done under sanctions

Leading French bank BNP Paribas said it would face no difficulty in absorbing the record multi-billion-dollar fine slapped on it by US authorities for breaking sanctions against pariah regimes.

Under the overnight deal, BNP Paribas accepted guilt and a number of penalties totalling $8.9 billion (6.5 billion euros) for organising ways to enable Myanmar, as well as Iran, Sudan and Cuba, to get round sanctions.

But on July 2, the bank said it had “ample” resources to pay the fine, and shares in the bank rose.

The terms of the deal enable the bank to avoid criminal prosecution, although the US Justice Department was severe in its findings.

It said the bank had hidden thousands of transactions with the countries between 2004 and 2012 in what officials called a “complex and pervasive scheme” which top bank managers knew broke US law.

“BNP went to elaborate lengths to conceal prohibited transactions, cover its tracks, and deceive United States authorities,” Attorney General Eric Holder said.

The violations aided countries involved in terrorism and human rights violations, Holder said, “in many cases to the detriment of United States national security.”

“This outcome should send a strong message to any institution, any institution anywhere in the world, that does business with the United States, that illegal conduct will simply not be tolerated,” Holder said.

The French government immediately sent signals that its threats to block a EU-US trade deal no longer applied and that contrary to its previous warnings, the bank’s ability to lend would not be crippled.

French Trade Secretary Fleur Pellerin assured that there was no risk or linkage between the case and the negotiations between the European Union and United States over the vast trans-Atlantic free trade agreement.

The finance director at BNP Paribas, Lars Machenil said the bank had “ample” cash resources and had no need “to rush”, ruling out any capital-raising operation for now.

Shares in the bank showed a gain of 4.05 percent in early afternoon trading to 51.55 euros despite the record fine, with investors expressing relief that the way ahead was now clearer.

“The CAC 40 (French stock index) is being pulled ahead largely by the good performance of BNP Paribas shares following the announcement of an agreement,” said Saxo bank analyst Christopher Dembik.

He said: “BNP Paribas should be well able to withstand the fine inflicted by US authorities which, in comparison with the assets managed by the bank, amount to only a very small, amount.”

The bank is expected to book a charge of 5.8 billion euros (US$7.9 billion) in its accounts for the second quarter of the year.

The effect might push its ratio of shareholders’ funds to risks underwritten down to 10.0 percent at most from 10.6 percent at the end of March, but still well within regulatory limits.

The agreement, which includes a ban on some dollar transactions, came after long negotiations.

French President Francois Hollande appealed for clemency to US President Barack Obama, who said he could not and would not interfere.

The bank has paid a severe price for breaching the sanctions, and some other banks are also at risk.

Several senior executives at BNP Paribas have had to go to assuage US authorities. An internal memo seen by AFP assures that there will no effect on employment or on pay.

The bank’s managing director Jean-Laurent Bonnafe said that “no client, no French will have to pay for this. The sanction will not have any effect on our prices, on financial security for our clients or on our services for clients.”

The bank intends to allow another bank to handle its banned dollar transactions.

French Finance Minister Michel Sapin said that the deal “preserves the future of the bank” which could continue to provide financing in a satisfactory way.

Meanwhile, Moody’s rating agency held its ranking of the bank’s credit rating at “A1”, and Fitch kept its notation at “A+”.


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