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Banks in Trouble: DOJ Expands FX-Market Rigging Probe

Zacks Equity Research
Updated

Banks, it seems, continue to be haunted by probes related to their past business malpractices. The U.S. Department of Justice (“DOJ”) has expanded its investigation for foreign exchange (“FX”) market manipulation to include other currencies, such as Russian ruble, Argentine peso and Brazilian real. This was first reported by Bloomberg, citing persons familiar with the probe.

The DOJ is using the cooperation clause included in the agreement with banks in May to extract more information. Further, to resolve the FX probe, the regulator is relying on the information provided by banks during the prior settlement.

As per the May agreement, the banks – Citigroup Inc. C, JPMorgan Chase & Co. JPM, The Royal Bank of Scotland Group plc RBS, UBS Group AG UBS and Barclays PLC BCS – stand immune from further prosecution in the FX probe, given that they cooperate with regulators during future investigations. Apart from these banks, the DOJ is examining business practices of other financial institutions like Deutsche Bank AG DB.

Additionally, the DOJ is expanding its investigation into individuals at major banks, including traders across the globe. The allegations include conspiring to influence emerging market FX rates to boost profits.

Notably, the U.S. is not the only country probing the FX-market rigging. Regulators in other countries including Brazil, South Korea, Australia and South Africa have also launched investigations to determine the impact of foreign-currency manipulation by global banks based in the U.K. and the U.S. in their respective nations.

Therefore, we believe that FX-market manipulation probes are not likely to end soon. Banks may have to raise their litigation reserves to fulfill future legal costs. Such actions will definitely hit their financials hard.

Notably, regulators across the globe, engaged in investigating such rigging and business misconducts, are determined to handle such cases with proper severity. This will dissuade such practices in the future, bringing justice to sufferers and punishing the wrongdoers.

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JPMORGAN CHASE (JPM): Free Stock Analysis Report
 
UBS GROUP AG (UBS): Free Stock Analysis Report
 
BARCLAY PLC-ADR (BCS): Free Stock Analysis Report
 
DEUTSCHE BK AG (DB): Free Stock Analysis Report
 
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Zacks Investment Research