Banks face new scrutiny

January 18, 2002 Posted: 1624 GMT

CNN's Diana Muriel

LONDON (CNN) -- International banks are coming under increasing scrutiny following two dramatic collapses -- Argentina's economy and energy giant Enron.

They are facing tightened government regulations in many of the countries where they operate, as well as stronger international laws – and bigger penalties – for money laundering and well as growing competition.

A graphic example is Argentina, where 10 banks were raided by police this week, including London-based HSBC and Banco Frances, a unit of Spain's Banco Bilbao Vizcaya Argenitaria.

	Reputation is important and a big international bank just can't afford to alienate clients in countries around the world.
	Stephen Timewell The Banker magazine

The raids were part of an investigation into the removal of billions of dollars, both before and after the December 1 freeze on capital transfers imposed by the Argentinian government in the face of a crumbling economy.

The government action is making international banks a target for Argentinian frustration. They may end up shouldering most of the $20-billion cost of the peso's devaluation.

But observers say it will be tough for international banks, like HSBC, to leave.

"Reputation is important and a big international bank just can't afford to alienate clients in countries around the world. HSBC is big in Brazil and it sends all the wrong messages," Stephen Timewell, editor of The Banker magazine, told CNN.

But the Argentinian crisis is just the latest problem for HSBC. It recently paid about $570 million to victims of a bond trading scandal involving its U.S. private banking unit.

And the collapse of Enron could cost HSBC as much as $100 million, according to some estimates.

	The major lesson to be learned from Enron is that every major bank still gets greedy.
	Jim Wood-Smith Gerrard Stockbrokers

JP Morgan Chase is another bank caught in the Enron fall out. It has written off $450 million of its $2.6-billion exposure to Enron.

Together, Enron and Argentina cost Citigroup – the world's largest financial services group -- almost $700 million, although the bank still posted 36-percent increase in fourth-quarter net income.    

"The major lesson to be learned from Enron is that every major bank still gets greedy," says Jim Wood-Smith, an analyst at UK stockbroker Gerrard.

"And when you get greedy, you take excessive risk and you can't price that risk to compensate for the possibility that there's going to be a big corporate failure at some stage," he said.

He said the worse may not be over for the international banking community.

"There's a possibility that Argentina might not be the only major emerging market crisis. There's certainly the possibility that Enron isn't going to be the only corporate failure."