Settlements for Forex manipulation announced. We will need to wait for all settlements to learn if this is only a cost of doing business

Three major regulators announced settlements with six banks for their now admitted manipulation of foreign exchange rates. At least two regulators (Department of Justice and NY Department of Financial Services) still have investigations open. One bank, Barclays, withdrew from the settlement.

The scheme ran for six years, starting after the fall 2007 meltdown and running until a year after the Libor settlements were underway.

Here is my recap of the fines by bank with calculation of the annualized cost, all amounts in U.S. dollars:


 UK FCA  US CFTC  Swiss Finma  US OCC  total  6 yr ave
 —-  —-  —-  —-  —-  —-  —-
 BofA         250          250                 42
 JPMorgan          351          310            –         350       1,011               169
 Citigroup          356          310         350       1,016               169
 UBS          368          290          139          797               133
 RBS          343          290          633               106
 HSBC          341          275          616               103
 Barclays            –                 –
 Duetsche Bk  none            –                 –
 —-  —-  —-  —-  —-  —-
      1,759       1,475          139         950       4,323               722


Spreading the fines over the number of years of the acknowledged manipulation puts the annual cost ranging from $42M for Bank of America to about $170M for Citigroup and JPMorgan.

Here are a few good articles on the settlement with a few of my comments.

11/12 – Wall Street Journal – Banks Reach Settlement in Foreign-Exchange Probe – Barclays pulled out of the settlement negotiations. The article cites a Barclays comment that amounts discussed were in the range of the other settlements.

Discouraging news is that this may have been a quick settlement by the regulators. Consider for yourself what may be behind the scenes of this comment, of which I must quote two sentences so you can look for nuance:

Wednesday’s deal is a rare example of regulators simultaneously settling allegations with multiple banks. Regulators are hoping to avoid a protracted settlement process that drags on for many years—the continuing investigation into manipulation of benchmark interest rates is approaching its seven-year anniversary.

Filter that through the lens of Sam Antar’s comment that fines are a tax extracted by regulators on illegal behavior.

Most encouraging news is the U.S. Department of Justice and the New York Department of Financial Services did not participate in this settlement. Looks like they still have investigations running.

We will need to wait for their settlements to determine the total cost to the banks.

Article says the regulators claim three types of manipulation: manipulate a general benchmark, trigger stop-losses, and share confidential client info.

11/12 – The Guardian – Foreign exchange fines: banks handed £2bn in penalties for market rigging – Scheme to rig forex ran from January 2008 through a year ago, October 2013, according to regulators.

Here is a one paragraph recap of the fines:

In the UK, UBS was handed the biggest fine, at £233m, followed by £225m for Citibank, JPMorgan at £222m, RBS at £217m, and £216m for HSBC. Barclays has yet to settle. In the US, the regulator fined Citibank and JP Morgan $310m each, $290m each for RBS and UBS, and $275m for HSBC.

Those amounts exclude the OCC and Swiss settlements.

11/12 – Reuters on Yahoo Finance – U.S. OCC fines three banks $950 million over forex misconduct – Only three banks get fined by the Office of the Comptroller of the Currency. I’m thinking they only fined those banks domiciled in the U.S. and thus the only banks under their jurisdiction.

I’ll have more discussion as I gain more understanding of the settlements.

Update: The print edition of the Wall Street Journal was run during the night. The expectation last evening was for seven banks to be in the settlement, which confirms that one dropped out very late, which is Barclays. Total fines expected to be about $4B in the print edition, which would imply the Barclays’ fine would be in the range of $700M.

Article also points out that multiple agencies are expected to pursue action against individuals now that the corporate settlements are resolved. Comment indicates that individuals will actually face some sort of consequences this time because the regulators are feeling pressure from comments that the only enforcement effort that is visible is taken against stockholders. Might even be some supervisors and managers that actually pay a price.

The pattern of bank staff breaking any law desired knowing that the stockholders will pick up the tab, even after public enforcement effort is underway for breaking similar laws, won’t change until the players involved know they might actually pay a price other than a lowered bonus.

Enforcement efforts possible in 2015.

3 thoughts on “Settlements for Forex manipulation announced. We will need to wait for all settlements to learn if this is only a cost of doing business”

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