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Pakistani bank shuts down U.S. operations after hefty fine

Pakistan’s largest bank Habib Bank Limited (HBL) shut down its operations in the United States on Monday after the New York State Department of Financial Service (DFS) slapped a hefty civil penalty worth 66 billion Pakistani rupees (629.6 million U.S. dollars).
The HBL announced in a statement to contest the hefty fine in the court of law in the U.S. It further decided to close its operations in New York and the DFS has allowed the bank to submit an application of withdrawal which is expected to commence shortly.

“Despite HBL’s sincere and extensive remediation measures, DFS is still not appreciating or recognizing the significant progress that HBL has made at its branch in New York and HBL has received a notice from DFS in terms of which DFS seeks to impose and outrageous civil monetary penalty of up to 629.62 million U.S. dollars,” the statement said.

The DFS penalty is being imposed in relation to “significant breakdowns” in the top Pakistani bank’s New York Branch’s risk management and compliance with the applicable federal laws, including anti-money laundering regulations in the U.S. which also culminate into unfulfilled compliance with an earlier-written agreement between the Bank and the Federal Reserve in 2006, resulting in a “compliance program violation.”

The decision is likely to deliver a significant blow to the largest Pakistani bank’s ambition to aggressively grow its operations outside Pakistan.

The DFS has asked the HBL to appear in a hearing scheduled on the issue in the last week of next month.
The development is set to result in a cumulative earnings wipe-out of 45 rupees per share and equate up to 25 percent of HBL’s book, the stock market analysts told Xinhua. In terms of size, the penalty is almost 30 percent of bank’s assets in the U.S. and the Middle East.
The HBL scrip hit the lower circuit Monday at 207.21 rupees per share after a massive decline of 10.90 rupees, thereby contributing 158 points to the key index’s overall decline. The analysts mentioned that even if HBL’s appeals fail in the U.S. court, it might still be able to talk out a phase-wise implementation which may prevent any sudden wipeout of its reserves.

The size of potential penalty is more than double the amount rumored in the market during the past few weeks and also significantly higher than the amount recently imposed by authorities on non-U.S. banks.

The imposition of colossal fine on Habib Bank will act as a warning to other Pakistani banks, particularly United Bank Limited (UBL), to review their branch operations and reduce presence from low-profit, high risk countries.


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