KARACHI: Shares of Habib Bank Ltd (HBL) hit their lower lock on Monday as news of a possible fine of up to $630 million broke in the morning.

The bank informed its shareholders about the development through a letter to the Pakistan Stock Exchange (PSX). It also announced the closure of its New York branch after receiving notice from the New York Department of Financial Services (DFS).

HBL was the target of an enforcement action by its main US supervisor and regulator, the DFS, back in 2015.

Announced on Dec 17, 2015, the order said the examination of the branch conducted by the Federal Reserve Bank of New York and the DFS “identified significant breakdowns in its risk management and compliance with applicable federal and state laws, rules and regulations relating to anti-money laundering (AML) compliance, including the Bank Secrecy Act (BSA).”

The bank was told to ensure that it will not “take any action that would result in an increase in the aggregate dollar value of the branch’s dollar clearing activities above the aggregate dollar value balance as of the date of the order.” In addition, the order also prohibited any increase in the volume of transactions undertaken by the branch, without prior written permission from the DFS.

The December notice asked HBL to identify all of the branch’s business lines, activities and products to ensure that they are appropriately risk-rated and included in the branch’s BSA/AML compliance programme, policies and procedures.

Bank says regulatory action is ‘unjustified, capricious, unreasonable, not supported by facts or law’

A high-level source in the bank with direct knowledge of the matter – but who did not wish to speak for attribution – told Dawn that the hearing to decide on the quantum of the fine is likely to be held before the end of September. The maximum fine applicable under the circumstances has been put at $629m. But in other similar cases, the eventual fine has been far below this amount, another source with deep familiarity with such enforcement actions told Dawn.

“HBL shall vigorously contest this in the scheduled administrative hearing and the courts of law in the United States, as being unjustified, capricious, unreasonable, not supported by facts or law and as being time-barred,” said a press release issued by the bank to the media.

In a letter to its shareholders, HBL expressed dissatisfaction with the US authorities and claimed that it had done its best to satisfy them.

“Despite HBL’s sincere and extensive remediation measures, the DFS is still not appreciating… the significant progress that HBL has made at its branch in New York,” the bank claimed.

The statement added that there will be no material impact on HBL’s business outside of the United States and the bank will continue to service the requirements of its domestic and international customers, including their dollar business.

Regulators in the United States have been tightening compliance requirements for financial institutions in recent years, and a growing number of banks are coming under enforcement actions for various reasons.

Since 2015, 21 banks have been subjected to enforcement actions by the DFS and the Federal Reserve, including Deutsche Bank AG, Credit Agricole S.A., Barclays Bank PLC, Standard Chartered Bank and Bank of India New York branch, amongst others. In March 2016, National Bank was also subjected to a similar enforcement action, although no fines were imposed at the time.

In a short statement, the State Bank of Pakistan (SBP) said it “is cognisant of these developments and is closely monitoring the situation and finds no imminent risks to HBL operations and the banking industry of Pakistan”.

The SBP reiterates its commitment to safeguarding the interests of depositors and ensuring safety and soundness of the banking system of the country, it added.

The HBL share price fell five per cent to Rs207.21. The bank declared profit after tax of Rs34.2 billion in 2016.

Published in Dawn, August 29th, 2017