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Standard Chartered eyes wider Iran settlement by year end

Employees of Standard Chartered leave a branch of the bank in central Seoul August 9, 2012. REUTERS/Lee Jae-Won
Employees of Standard Chartered leave a branch of the bank in central Seoul August 9, 2012. REUTERS/Lee Jae-Won

By Kelvin Soh and Matt Scuffham

HONG KONG/LONDON (Reuters) - Standard Chartered said it was aiming for a wider year-end settlement with U.S. authorities investigating its Iran-linked transactions.

The Asia-focused bank, on track for a tenth straight year of record earnings, agreed in August to pay New York's banking regulator $340 million to settle allegations it hid some $250 billion worth of transactions with Iran.

But other probes, including a criminal investigation, are still going on.

"We're in active and constructive dialogue with all of the other agencies. We hope to get that finished and completed by the year end but it's not wholly in our power to do that," Finance Director Richard Meddings said.

Standard Chartered, which is negotiating with the Manhattan District Attorney, the U.S. Treasury Department, the Justice Department and the New York Federal Reserve, said last month it could not predict the outcome or quantify potential liabilities.

The bank said on Tuesday its operating profit grew by a mid-single digit rate in the first nine months of the year.

Earnings would have risen by at least 10 percent but for the settlement York regulators who threatened to strip the bank of its state licence over its Iranian deals.

"Although the environment remains turbulent, we are in the right markets and continue to see good momentum across our businesses and geographies," CEO Peter Sands wrote in a third-quarter trading update on Tuesday.

The bank's forecast is roughly in line with full-year expectations for a 6 percent rise in pretax profit to about $7.2 billion, according to Thomson Reuters I/B/E/S.

It does not release specific numbers in its quarterly updates. First-half pretax profit and income both increased by around 9 percent, the bank said in August.

Hong Kong, China, Indonesia and Europe delivered a strong performance, the bank said, without elaborating.

It also managed to keep costs under control, with expenses rising roughly in line with revenue - a trend known as "neutral jaws". Standard Chartered was bogged down by rising costs in much of 2010 and 2011 as it expanded across Asia.

Standard Chartered is one of few still expanding its headcount, which totalled about 85,000 at end-June. In August, the bank said it planned to add 1,500 staff in the second half. Major European peers, in contrast, are pruning staff numbers.

RISK OF BAD LOANS

Weighing on Standard Chartered's earnings was weakness in India, Singapore's wholesale banking and South Korea's consumer banking, it said.

Rising household debt in South Korea - which now exceeds that of the United States before the subprime mortgage crisis - has prompted worries the country may soon see a spike in bad loans. In Singapore, the city-state narrowly escaped a recession in the third quarter.

"You can't fight gravity," said Jim Antos, an analyst at Mizuho Securities in Hong Kong. "Let's face it. The global economy isn't getting better, so that's going to have an impact on earnings."

Antos said he expects analysts to revise down Standard Chartered's full-year earnings forecast by another 5-10 percent, given the external headwinds.

Despite the slowdown, Standard Chartered said it reduced the amount of money put aside in case of bad loans - its impairment charge - by tens of millions of dollars. In the first half, the bank set aside $583 million for impairment charges.

A $1 billion loan Standard Chartered made to the Indonesian chairman of London-listed coal miner Bumi Plc - which is probing alleged financial irregularities at its Indonesian units - triggered some concern over the bank's asset quality and lending practices.

Standard Chartered shares were down 0.6 percent in London, lagging a 1.1 percent gain in the European bank index <.SX7P>.

($1 = 0.7749 euros)

(Reporting by Kelvin Soh; Editing by Ian Geoghegan and David Cowell)

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