LONDON â€" Shares of Standard Chartered tumbled on Tuesday as investors reacted to accusations that the British bank schemed with the Iranian government for nearly a decade to launder $250 billion.
In morning trading in London, Standard Chartered's stock fell by almost 24 percent as analysts estimated that the firm may have to pay around $5.5 billion in costs related to the money laundering case. It was the sharpest one-day decline in the bank's shares since at least 1988, according to Bloomberg data.
The news comes at a difficult time for British banks.
Barclays agreed to a $450 million settlement with American and British officials in June after some of its traders and senior executives were found to have alter the London interbank offered rate, or Libor, for financial gain.
Rival HSBC also apologized last month for not cracking down soon enough on money-laundering activities in America. David Bagley, the head of compliance for the British bank s ince 2002, resigned because of the scandal.
Standard Chartered, which relies on operations in fast-growing emerging markets for the majority of its profits, had side-stepped many of the problems facing European financial institutions, including a fall in trading activity related to Europe's debt crisis.
Yet its reputation now stands to be tarnished after having been ensnared in a case that New York's top banking regulator said had left the United States financial system vulnerable to terrorists and corrupt regimes.
The New York regulator accused the bank of masking more than 60,000 transactions for Iranian banks and corporations, as the firm pocketed millions of dollars in fees.
Senior management at the 150-year-old bank used its New York branch “as a front for prohibited dealings with Iran - dealings that indisputably helped sustain a global threat to peace and stability,†according to a regulatory order sent to the bank.
In response, the British bank said it “strongly rejects the position and portrayal of facts†by the New York State Department of Financial Services.
Fines connected to the money laundering case my cost Standard Chartered around $1.5 billion, according to Cormac Leech, banking analyst with Liberum Capital in London.
The firm could lose an additional $1 billion from a cutback in operations connected to Iran, as well as $3 billion in market value if some of the bank's senior executives, including chief executive Peter Sands, are forced to resign over the scandal, Mr. Leech added.
Along with the financial penalties, Standard Chartered may also have its New York banking license revoked because of the activities. Analysts say that prospect remains unlikely, as United States authorities have focused their attention on monetary fines for the British bank.
Unlike other European financial giants that have suffered from a downturn in trading activity, Standard Chartered repo rted an 11.3 percent rise in net profit in the first half of the year, to $2.86 billion.
Before the money laundering accusations were made public, shares in the firm have outperformed other financial institutions. Over the last 12 months, Standard Chartered's stock has risen 10.4 percent compared with a 12.8 percent drop in the Stoxx Europe 600 Banks index.
