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After months of negotiations, Paris-based BNP Paribas SA (BNPQY - Free Report) finally announced settlement of the money-laundering charges against it. Apart from having to pay $8.97 billion (€6.6 billion) to the U.S. regulatory authorities, the bank also pleaded guilty of criminal charges for falsifying business records and violating the International Emergency Economic Powers Act.

The regulators involved in the settlement are the U.S. Department of Justice, U.S. Attorney’s Offices for the Southern District of New York and the New York County District, the Federal Reserve, the New York State Department of Financial Services (DFS) and the US Department of the Treasury’s Office of Foreign Assets Control (OFAC).


BNP Paribas will be required to suspend its U.S. dollar-clearing operations for one year, beginning Jan 1, 2015. The operations likely to be impacted include dollar clearing on behalf of the oil and gas finance operations from Geneva, Paris and Singapore as well as the trade finance business from Milan and oil and gas-related clientele from Rome.

Further, BNP Paribas will be required to ban all U.S. dollar-clearing operations as a correspondent bank in New York and London for two years. Additionally, the company has to terminate services of several senior executives. However, BNP Paribas is retaining its banking license in New York.


BNP Paribas’ dealings amounting to nearly $30 billion, with sanctioned countries including Sudan, Iran and Cuba, were under probe. Majority of the transactions pertained to Sudan, while quite a number of fund transfers referred to Iran and other sanctioned countries.

BNP Paribas allegedly used regional overseas banks to route transactions with the sanctioned countries and deliberately concealed such transactions from the U.S. Treasury Department's screening system by various methods.

Implications of the Settlement

BNP Paribas had already provisioned for the above-mentioned settlement. Nevertheless, the bank will have to bear an additional charge of $7.9 billion (€5.8 billion) in second-quarter 2014.

Further, BNP Paribas anticipates its fully loaded Basel III common equity Tier 1 ratio to be approximately 10% as of June 30, 2014. The  expectation is based on the assumptions that its second-quarter results will be impressive and it would continue paying dividend at the same rate as in 2013 (€1.5 per share).

Although BNP Paribas is one of the stronger European banks, the overall macroeconomic scenario, coupled with the above-mentioned penalty, could weigh on the bottom-line results. Also, we believe that the business sanctions imposed on the company will likely put pressure on revenue growth owing to client exodus.

With settlement talks doing rounds for quite some time, the Zacks Consensus Estimate has been revising downwards over the last 30 days. Hence, BNP Paribas currently has a Zacks Rank #4 (Sell).

Other Banks on the Radar

The U.S. regulators are now shifting their focus on investigation of similar allegations against other global banks. According to familiar sources and other public disclosures, Credit Agricole SA, Societe Generale SA, Deutsche Bank AG (DB - Free Report) and Citigroup Inc.’s Banamex unit in Mexico are among those being probed for money-laundering or sanctions violation.

Apart from BNP Paribas, the U.S. subsidiaries of many global banks including those of HSBC Holdings plc (HSBC - Free Report) , ING Groep NV and Barclays PLC (BCS - Free Report) have already settled similar charges brought by the law-enforcement agencies.

However, the actual timing of the settlement or possible legal actions for the banks being probed is uncertain.

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