UBL to wind down New York branch as part of 'global realignment strategy'

Published November 22, 2018
A view of the UBL head office in Karachi. — Photo: screengrab
A view of the UBL head office in Karachi. — Photo: screengrab

The United Bank Ltd (UBL) has announced its plans to wrap up its operations in New York, saying the decision has been taken considering the commercial viability of the branch.

"As part of its global realignment strategy, UBL intends to voluntarily liquidate and surrender its license pursuant to New York Banking Law," the bank said in a letter to the Pakistan Stock Exchange (PSX) on Thursday.

"This is a commercial decision keeping in view the commercial viability of NY Branch and is subject to all regulatory approvals," it added.

The bank has notified its intent to wind up operations to the New York Department of Financial Services (DFS), the filing said.

"UBL will continue to work closely with its US regulators throughout the voluntary liquidation process to ensure that the New York branch is wound down in an orderly manner, complying with all applicable Federal and State Laws, Rules, and Regulations."

The bank revealed that it already has "well-established multiple correspondent banking relationships" which provide US dollar clearing services to its customers.

The announcement comes months after the US Federal Reserve Bank ordered UBL to toughen its anti-money laundering policies as the regulator faulted the Pakistani bank for not doing enough to track suspicious transactions.

UBL had subsequently signed an agreement with the Federal Reserve Bank of New York in July to comply with laws and regulations of United States.

According to the agreement, UBL was bound to take steps to address deficiencies concerning its New York branch’s risk management and compliance framework under federal and state laws, rules, and regulations relating to anti-money laundering compliance, including the Bank Secrecy Act.

UBL is the second of the country’s largest private banks to wind up their US operations. In August, the Habib Bank Limited had announced its decision to close its New York branch following intimation from the state's financial regulator that it seeks to impose a hefty penalty of nearly $630 million on the bank.

'Negligible' operations

Analysts at Arif Habib Ltd (AHL) said their discussions with the UBL management revealed that the primary reason for closure of the New York branch was on account of "a lack of commercial feasibility of the branch".

The bank's operations in the US are "negligible" as they form only 0.2 per cent of its total assets compared to 0.7pc during the same period last year.

"The compliance infrastructure and its implementation is extremely costly and the bank’s immaterial operations in NY would not justify such expenses," AHL said in a statement.

It said the bank's management had "confidently" denied the possibility of any penalty being imposed on it by the US regulators.

AHL analysts cautioned, however, that the compliance related review of the bank is still ongoing and the withdrawal of the agreement signed between UBL and the New York Fed is "solely on the regulator’s discretion".

The process of shutting down the bank's New York branch is expected to be completed within a year, the brokerage house said.

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, more than 20 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, the National Bank was also subjected to an enforcement action, although no fines were imposed at the time.

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