The cost of insuring debt sold by Standard Chartered Plc (STAN) soared by the most in almost four years after the lender was accused of violating U.S. money laundering laws by dealing with Iranian institutions subject to sanctions.
Credit-default swaps on Standard Chartered jumped 35 basis points to a more than six-month high of 169 at 3:30 p.m. in London, the biggest increase since October 2008. An increase signals deterioration in perceptions of credit quality.
Investors are concerned Standard Chartered will be damaged after New York’s Department of Financial Services said the London-based lender earned hundreds of millions of dollars in fees from Iranian banks. Barclays Plc, Lloyds Banking Group Plc and ING Groep NV have paid more than $1.2 billion in U.S. fines since 2009 for violating trade laws with sanctioned countries.
“I’m not sure there’s a lot of material pressure behind this headline,” said Roger Francis, an analyst at Mizuho International Plc in London. “They may have some liability or fines, but of an order of magnitude that other banks have taken without too much of a hit. I’m recommending buying the bonds if they are available at these wider spreads.”
Standard Chartered said it “strongly rejects the position and portrayal of facts” made by the state regulator. The firm’s U.S. unit may be suspended from doing business in New York, the regulator said.
Standard Chartered’s 7.75 percent bonds due 2018 fell 3.11 pence, or 2.6 percent, to 115.2 pence on the pound, pushing the yield to a one-month high of 4.63 percent. The notes’ yield premium to U.K. government debt widened 56 basis points to 392 basis points, or 3.92 percentage points.
The cost of insuring corporate and financial debt fluctuated with the Markit iTraxx Crossover Index of 50 companies with mostly high-yield credit ratings down 1.5 basis basis points to 582, while the Markit iTraxx Europe Index of 125 companies with investment-grade ratings rose one basis point to 148.
The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers increased 2 basis points to 245 and the subordinated index was up 4 at 403.
The Markit iTraxx SovX Western Europe Index of credit- default swaps on 15 governments climbed six basis points to 245.
A basis point on a credit-default swap protecting 10 million euros ($12.4 million) of debt from default for five years is equivalent to 1,000 euros a year. Swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements.
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