Standard Chartered Follows HSBC in Cutting Service to Huawei

December 22, 2018 Updated: December 22, 2018

After its CFO Meng Wanzhou was arrested in Canada, Huawei has been confronted with more challenges, including reduced access to the global financial system.

After the British bank HSBC Holdings stopped offering financial services to the Chinese tech giant, a second UK bank, Standard Chartered, followed suit citing unacceptable risks. Citigroup, Huawei’s last major supplier of banking services, said it will review all new business with Huawei.

Huawei’s CFO and vice chairman Meng Wanzhou is under surveillance in Vancouver following her release on bail; she is being charged with fraud and violating U.S. sanctions on Iran. She faces extradition to the United States, to the great protest of the Chinese regime.

On top of this scandal, Huawei faces big challenge for its overseas business, which contributes half of its revenue.

Due to its close connections with the Chinese regime, Huawei has been banned by at least four government so far, including the United States, Australia, New Zealand, and Japan. More countries are considering whether to follow suit.

Wall Street Journal reported on Dec. 20 that the three key banks that Huawei uses have changed their attitude towards it.

Great Britain’s HSBC Holdings PLC, which had been investigated in the early 2010s on charges that Huawei used its services to do business with Iran, decided in 2017 to stop provide new banking services or funding to Huawei. The report quoted an insider as saying that HSBC considered the risks of associating with Huawei to be too high.

Recently, Standard Chartered PLC, another British multinational banking and financial services company, came to the same conclusion as HSBC and cut off their services to Huawei.

The American Citigroup Inc. continues its day-to-day banking services to Huawei. According to reports, Citigroup too will review its business with other companies in order to analyze risks. This includes risks associated with Huawei.

Apart from these three banks, the report quoted insiders as saying that Huawei also has received funding from JPMorgan Chase & Co., Australia & New Zealand Banking Group Ltd., and the Dutch ING Groep NV.

Currently, these banks didn’t provide comments on their ties with Huawei, but it’s possible that they may change their policy given the possibility of future sanctions against Huawei.

Bloomberg reported on Dec. 21 that there’s a chance that Huawei will face similar temporary sanctions as its smaller Chinese competitor, ZTE.

ZTE had violated U.S. sanctions on North Korea and Iran. This violation was settled in March 2017, with the company agreeing to pay an $892 million fine and place $300 million in escrow.

Later on, American authorities learned that ZTE had lied before and during the 2017 deal. In response, American export watchdogs blocked ZTE from buying crucial components and software needed for manufacturing cell phones and telecommunications equipment from American tech companies like Qualcomm, Google, and Corning.

In order to regain access to U.S. technology crucial to its business, ZTE agreed on June 7, 2018 to pay a $1 billion fine and submitted to the strictest compliance measures ever issued by the Commerce Department.

Huawei’s cash flows in 2017 totaled 96 billion yuan ($13.95 billion), with revenue of 603.6 billion yuan ($87.4 billion) according to its annual report.

Huawei has businesses in 170 countries and drew 49.5 percent of its 2017 revenue from overseas markets. As such, it is heavily reliant on U.S. currency.

Bloomberg analyzed that Huawei will be in trouble if Citigroup and other banks decline to service Huawei because of the knock-on effects it would have on other banks, including those in China. If no foreign banks service to Huawei, it won’t be able to continue operating its overseas offices and branches, or execute business contracts.