Habib Bank Limited (HBL) has decided to cease its branch operations in New York, which mainly offers US dollar transaction clearing services. The branch was operating in the US city since 1978. This decision has been taken after the New York State Department of Financial Services proposed to issue a fine of $630 million due to “deficiencies relating to compliance with state and federal laws at its US branch.”
It is pertinent to mention that HBL has voluntarily decided to close its business in New York after it deemed that the US Authorities were being unfair with the financial institution.
The task will be carried out in an orderly manner and New York State Department of Financial Services has allowed HBL to submit a voluntary application to shutdown its New York business. Steps to formalize this will take place shortly.
HBL Treated Unfairly
In 2015, the New York branch was subject to a Consent Order and a Cease and Desist Order by the New York State DFS and the Federal Reserve Bank of New York respectively.
HBL had notified the Pakistan Stock Exchange of this in December 2015.
Despite HBL’s sincere and extensive measures to resolve the complaints put forward by US Authorities over the last two years, DFS is still not appreciating or recognizing HBL’s progress. HBL has received a notice of departmental hearing by DFS,where it seeks to propose an outrageous civil monetary penalty of up to $629,625,000.
Nauman Dar said they were not provided with enough time as they only had a few months to bring immediate reforms in their departments.
“In the end of 2015, an agreement was made to strengthen our system and in June 2016, in a matter of few months, reforms were not possible, which eventually lowered our rating and when the report appeared it was not satisfactory,” he added.
Customers & Shareholders Have Nothing to Worry About
The actual penalty has not yet been imposed and only a maximum amount of potential penalty is proposed which will now be legally contested by the HBL. It is not uncommon for such penalties to be reduced to a fraction of the initial amount when taken to court.
Addressing apprehensions of customers, President and Chief Executive Officer HBL, Nauman Karamat Dar, said this would not have any effect on local or international customers except for a few countries which do not entertain alternative US dollar clearing services.
“There will be no material impact on HBL’s business outside of the US and HBL will continue to serve requirements of the domestic and international customers including for their US dollar business,” an HBL press release stated.
The bank has now decided to fulfil US dollar clearing services through a correspondent bank, similar to a large number of other global banks.
HBL plans to vigorously contest against the proposed penalty during the administrative hearing scheduled for September 27. Its case will be backed by evidence against the courts of law in the United States, which are unjustified, capricious, unreasonable, not supported by facts of law. The bank will also mention the time related issue.
The president of HBL said the bank would be given time to defend the case clause by clause. He said there was no significant wrongdoing committed by the bank. It was only a matter of compliance with laws and regulations mainly, he added.
He says HBL is the largest and strongest bank of Pakistan and its history dates back to early days of Pakistan. Its first fund, Pakistan Fund, was signed by Quaid-e-Azam Muhammad Ali Jinnah.
He claimed that its bank is the highest earning financial institution in Pakistan. Profitability of HBL was unmatchable during the past year, he added.
“In the recent past, the world has seen some serious penalties by the US against some big name banks of the world, including Barclays, Standard Chartered Bank, BNP Paribas, Deutsche Bank and Bank of Mitsubishi, while the penalties we have been imposed are comparatively of not serious nature,” Nouman said.
The CEO admitted that the bank’s system still uses human analysis while there is now an automatic system to analyse transactions. “Nevertheless, we made errors, however the penalty is disproportionate,” he said.
He reiterated that only weaknesses and leakages had been identified.
To a query, he said HBL had a gag order to not disclose anything in this regard and it was only lifted on August 25 and the earliest possible it could announce the issue was on Monday.
State Bank Supports HBL
State Bank of Pakistan in a press release stated that it was cognizant of the developments and had been closely monitoring the situation. It has found no imminent risks to HBL operations and the banking industry of Pakistan.
The central bank of Pakistan also reiterated its commitment to safeguard the interests of depositors and to ensure safety and soundness of the banking system of the country.