Peter Sands, CEO of U.K. bank Standard Chartered, got to live the fantasy of every bank CEO whose institution is accused of wrongdoing by regulators. He hit back. You could almost hear the cheering erupt from Wall Street and the City of London. But will his defense hold?
Earlier this week, New York’s banking regulator accused Standard Chartered of hiding transactions with Iran. In scorching language, a report by the New York Department of Financial Services said the bank concealed some 60,000 transactions with Iran and labeled Standard Chartered a “rogue institution.”
After a hasty return from his vacation, Sands went on the offensive. In a conference call and in media interviews, he said the regulator’s report was inaccurate, and he insisted the bank’s culture did not need to change. Investors liked his counter-punching, and the bank’s shares gained 7% after losing nearly a quarter of their value the day before.
The communication strategy used by Standard Chartered relied on five principles:
1. Exploit regulatory rivalries. Regulators are territorial, quick to defend their turf, and the action by the New York Department of Finance clearly irked the Federal Reserve and the UK Financial Services Authority. Standard Chartered – and cloaked officials at the Fed and the FSA – sought to portray the Department as a rogue regulator whose actions would ultimately weaken enforcement efforts.
2. Point to factual errors. Focusing on small things can sometimes deflect attention from bigger things. So by hitting at what he called “factual inaccuracies’ in the regulator’s report, Sands was able to cast doubt on its overall conclusions.
3. Fault the process. Everyone deserves to be treated fairly, even big banks accused of bad things, or so the thinking goes. Sands was quick to point out that the bank had been blindsided by the report, saying: “We were surprised in the manner of the announcement and that it was done without giving us any notice.” You almost sympathize with him. Almost.
4. Rally hometown regulators to your defense. Like a savvy political boss, Sands was able to wring statements of support from top London officials. Mervyn King of the Bank of England said regulators should be cautions and well-coordinated in their investigations, and London Mayor Boris Johnson lauded the bank’s “high reputation for probity.” I wonder if any US bank CEO could count on such endorsements.
5. Ignore inconvenient facts. The most important part of the bank’s strategy all was to ignore the most damaging parts of the regulator’s report – the abundance of email and other evidence that bank officials deliberately disguised transactions with Iran to skirt US law. Sands did not mention that at all.
Sands seems to have gained a reprieve for the bank, at least for now. But gains from hitting at regulators usually are short-lived. Regulators wield considerable authority and seldom back down when publicly challenged. A settlement involving fines and other measures seems likely. News reports are emerging that a settlement between the bank and the New York regulator is near.