KARACHI: Habib Bank Limited (HBL) has announced to close its operations in New York after the state Department of Financial Services (DFS) seeks to  slap a civil monetary penalty of $629.625 million, which HBL termed “outrageous”.

HBL’s scrip closed on its lower circuit breaker of 5.0 percent on Monday as the penalty amount is much higher than the street consensus of $100-$300 million.

However, HBL would continue to service the requirements of its domestic and international customers including US dollar business. “HBL’s New York branch contributes around 1.5 percent to HBL’s total assets and 1.0 percent to HBL’s total profitability,” a report issued by Topline Securities.

In December 2015, US Federal Reserve had slapped a partial ban on HBL New York branch’s growth of its US dollar business for reportedly not complying with US anti-money laundering laws.

“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 an outrageous civil monetary penalty of up to $629.625 million,” Nausheen Ahmad, Company Secretary at HBL said in a notice sent to stock exchange.

HBL will contest this imposition of penalty in the schedules administrative hearing and the courts of law in the United States for being unjustified and time barred.

“HBL has further decided to close its operations in New York in an orderly manner and DFS has allowed HBL to submit an application for orderly winding down of its New York branch. Steps to formalize this will commence shortly,” Nausheed Ahmad said.

US regulators had found deficiencies in the risk management and Bank Secrecy Act (BSA) and Anti-money Laundering (AML) compliance program at HBL’s New York branch and imposed certain additional requirements to remediate on the branch and provided mechanisms for enforcement if the remediation was not met.

“The penalty, if imposed for the full $629 million, works out to Rs45/share which is over two years of the bank’s bottom line,” Syavash Pahore at Elixir Securities said.

Although the bank has communicated that this penalty would not have a material impact on HBL’s business outside United States, however, “We contend that a penalty of this magnitude will have significant bearing on HBL’s capital adequacy ratio (CAR) amid increase in risk weighted assets. Other possible implications could include suspension of dividends and formulation of a strategy for raising capital, Shahbaz Ashraf, Head of Research, at Arif Habib Limited said.

Analysts have also highlighted risks to country’s foreign exchange reserves on the back of potential outflow from this penalty.

As of June 30, 2017, HBL’s net assets stood at Rs185.098 billion and its total investments stood at Rs1.388 trillion in addition to Rs198.446 billion in cash and balances with treasury banks. HBL posted a net profit of Rs14.998 billion translating into earnings per share of Rs10.22 for the half year ended June 30, 2017.

The Aga Khan Fund for Economic Development (AKFED), S.A. is the parent company of the Bank and its registered office is in Geneva, Switzerland.