HSBC, Deutsche Bank Lead Bank Stock Sell-Off Following Money Laundering Allegations, Potential China Blacklist

HSBC, Deutsche Bank Lead Bank Stock Sell-Off Following Money Laundering Allegations, Potential China Blacklist

HSBC Holdings plc HSBC shares dropped more than 6% on Monday following reports the bank was involved in large-scale money laundering over a period of nearly two decades.

Investors in HSBC and the other banks mentioned in the reports are now trying to figure out exactly what the scandal fallout will mean for the stocks.

What Happened? On Sunday, BuzzFeed reported leaked Suspicious Activity Reports (SARs) filed with the United States Department of Treasury suggesting HSBC, JPMorgan Chase & Co JPM, Deutsche Bank AG DB, Standard Chartered Plc SCBFF, and Bank of New York Mellon Corp BK and other banks collectively processes more than $2 trillion in suspicious transactions from 1999 to 2017. Banks are required to file SARs within 60 days of detecting specific transactions.

Deutsche Bank's stock was down more than 9%.

See Also: What FinCen Files Leak Is All About

Why It’s Important: Allianz chief economic advisor Mohamed El-Erian told CNBC banks are already facing a historically difficult environment given low interest rates, higher credit risk and less credit card activity.

“Now put on top of that renewed concern about regulatory and supervisory issues and it literally is the perfect storm. That’s important because what has been helping banks so far has been wealth management and investment banking....If you put a question mark over wealth management, then it’s another headwind,” El-Erian said.

Bank of America analyst Richard Thomas downgraded some of HSBC’s debt and said the combination of money laundering allegations and a separate report by China’s Global Times that the bank may be listed as an “unreliable company” by China has created too much risk in the near-term.

“We are cooling further to exposure to HSBC following press reports over the weekend on that undermine the stability that we have historically associated with the name,” Thomas wrote in a note.

Bank of America has a Neutral rating and $22.56 price target for HSBC stock.

Benzinga’s Take: Banks mentioned in the BuzzFeed report are arguing they were simply following protocol by reporting suspicious transactions to regulators, and the only reason anyone knows about the $2 trillion in potential money laundering is because of their diligence in filing SARs. However, investors have a right to be concerned about global megabanks like HSBC allegedly providing services to money launderers, organized criminals, Ponzi schemers and drug traffickers.

Posted In: AllianzBank of AmericaBuzzFeedMohamed El-ErianRichard ThomasAnalyst ColorGovernmentNewsPenny StocksRegulationsLegalTop StoriesAnalyst Ratings