Standard Chartered sues Citibank for dollars 41m

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THE Bombay stock exchange scandal appeared yesterday to be heading into a new phase of extensive litigation between banks, following an announcement by Standard Chartered that it is suing Citibank of the United States for dollars 41m ( pounds 24.5m) in the New York courts.

Standard refused to give details of its claim but said that it related to securities transactions in Bombay between September 1991 and March 1992.

Standard, Citibank, Grindlays and Bank of America were all caught up in India's biggest financial scandal, but of the four banks only Standard has so far revealed serious financial losses.

Standard claims it was defrauded of pounds 182m by employees, brokers and investors involved in the scandal, and has provided pounds 100m against this year's profits for possible losses in India.

It also injected pounds 450m extra liquidity into its Indian branches to cope with dislocation in the money markets following the scandal.

Citibank said: 'We deny we owe Standard Chartered any money and we intend to resist their claim vigorously.' A spokeswoman refused to say whether a countersuit was contemplated.

The case against Citibank is understood to be separate from allegations made by Standard against its own employees and others, who it claims have defrauded the bank in an attempt to cover up losses stemming from dealings in the share and bond markets.

One source involved described the suit against Citibank as a 'question of musical chairs: where does a parcel of money end up when the music stops?'. Most banks involved are understood to be sitting on funds originating from the stock exchange affair.

The Reserve Bank of India, the government's Central Bureau of Investigation and a joint parliamentary committee have been conducting an extensive investigation that has pinpointed the key abuse as centred on an informal securities market between banks, in which stockbrokers acted as middlemen.

Meanwhile, there were renewed rumours in the markets of a bid for Standard Chartered, whose share price has recovered sharply after falling nearly 100p from its peak earlier this year in the wake of revelations about Indian problems.

Yesterday, the price rose 12p to 493p, but the buoyancy was traced to a sponsored visit for analysts to the Far East, organised by Standard Chartered itself. Brokers wrote buy recommendations on their return. Standard has also had several recent successes in unrelated litigation in Australia and the US that have helped offset the potential Indian losses.