Currency Manipulation Probe Continues
12/26/2013
Earlier Post On Recaps Relating To Same Topic:
Preventing Currency Manipulation By Simon Johnson LINK
Lloyds Said to Join RBS in Chat-Room Ban Amid Currency Probe (2)
Story From Bloomberg BusinessWeek
By Gavin Finch, Laura Marcinek and Alexis Xydias December 19, 2013
Lloyds Banking Group Plc (LLOY) and Royal Bank of Scotland Group Plc joined larger competitors in banning traders from using multidealer chat rooms amid probes into currency manipulation.
Lloyds prohibited traders from using multibank chat rooms, while allowing one-on-one use of the forums, said a person with knowledge of the matter who asked not to be identified because the plan is not public.
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RBS banned chat rooms involving more than one client, securities house or broker, a person familiar with the matter said yesterday.
The world’s biggest banks are reining in use of chat rooms as regulators examine messages for evidence traders manipulated currencies or benchmark rates. JPMorgan Chase & Co. (JPM:US) banned multidealer chat rooms yesterday.
Deutsche Bank AG (DBK) will widen a prohibition on such forums to include its entire investment bank and transaction-banking business.
Video: Report: Banks Reviewing Chat Room Policies Link:
http://www.businessweek.com/videos/2013-11-27/report-banks-reviewing-chat-room-policies
“Recent policy updates include explicit rules governing the usage and controls for messaging systems in financial markets,” Lloyds said in a statement today. Rebecca Nelson, a spokeswoman for RBS, declined to comment.
RBS, Lloyds, Deutsche Bank and Citigroup Inc. (C:US) are among firms reviewing e-mails, instant messages and phone records of their foreign-exchange employees for evidence of potential manipulation, people with knowledge of those probes have said.
‘Avoid Generalizations’
RBS, based in Edinburgh, handed over records of instant messages to U.K. regulators after concluding a former currency trader’s communications with counterparts at other firms may have been inappropriate, two people with knowledge of the matter said in October. The messages related to the dealer’s trading positions, those people said.
JPMorgan, the biggest U.S. bank by assets, wrote to traders yesterday banning them from participating in electronic chats with two or more other dealers.
It also banned “persistent social chats” and reminded employees to be professional in all communications with clients and colleagues, according to the memo to employees.
“Please refrain from using exaggerated or inappropriate language and avoid generalizations or sarcasm that could be misunderstood at a later date,” investment banking co-heads Michael Cavanagh and Daniel Pinto wrote. “What you write is a direct reflection of yourself and the firm.”
Citigroup also prohibited the use of chat rooms to communicate with multiple traders at other banks, while still allowing their use for a one-to-one basis, according to a person familiar with the New York-based firm’s decision.
Deutsche Bank, based in Frankfurt, initially restricted employees in its foreign-exchange business from using the chat rooms in February amid a global probe into the rigging of the London interbank offered rate, or Libor, before widening the ban, Michael Golden, a spokesman, said on Dec. 17.
Chat Rooms
Bloomberg News reported in June that currency dealers said they had been front-running client orders and attempting to rig foreign-exchange rates by colluding with counterparts and pushing through trades before and during the 60-second windows when the benchmarks are set.
They would share details of orders with brokers and counterparts at banks through instant messages to align their strategies, two of the people said at the time.
Chat rooms make it easier for traders and salespeople on different floors or in different offices to coordinate with clients. Traders may correspond on platforms provided by Bloomberg LP, the parent of Bloomberg News, Thomson Reuters Corp. or private networks. Bloomberg reporters are prohibited from participating in client chat rooms on the company’s terminals.
http://www.businessweek.com/news/2013-12-18/rbs-said-to-join-chat-room-crackdown-amid-manipulation-probes
Story: European Banks Pay for Their Sins By Nicholas Comfort
Bad behavior can be expensive. Since September 2008, the 18 European banks with the highest litigation expenses have set aside or paid out more than $77 billion, five times their combined profit last year, according to data compiled by Bloomberg.
And the total is probably higher, because many settlements aren’t public. “Banks aggressively followed a very, very return-oriented business model before the crisis,” says Martin Hellmich, a professor of risk management and regulation at the Frankfurt School of Finance & Management. “Now they’re paying for the past with settlements and fines.”
Regulators are citing European banks for infractions including helping some clients launder money and avoid taxes; selling bonds backed by faulty mortgages; failing to disclose the risk of products designed to protect buyers from interest rate swings; and manipulating market benchmarks.
Since late 2008 the 18 banks paid at least $24.9 billion to settle lawsuits and probes, set aside $31.5 billion to compensate U.K. clients who were improperly sold products including mortgage insurance, and earmarked $20.9 billion for additional penalties.
The expenses have hurt banks’ profits and slowed their efforts to build capital. Future penalties may prompt them to delay boosting dividends or buying back stock, analysts at Keefe, Bruyette & Woods wrote in a November report to clients.
$77b Amount 18 European banks have paid or set aside for legal expenses
Lloyds Banking Group (LYG), Britain’s largest mortgage lender, and Deutsche Bank (DB), Europe’s biggest investment bank by revenue, together account for about 31 percent of the total, according to company reports.
Lloyds is paying more than £8 billion ($13 billion), the most of any bank, to compensate U.K. customers who were sold loan insurance that didn’t cover them or that they didn’t need.
Deutsche Bank’s legal reserves of $7.5 billion at the end of September included about $600 million to repurchase flawed mortgages, as well as money to cover a potential settlement with the heirs of a German media tycoon and possible fines for manipulating benchmark interest rates.
Regulators are investigating whether more than a dozen banks colluded to manipulate Libor, the London interbank offered rate, a benchmark for more than $300 trillion of securities worldwide.
Barclays (BCS), UBS (UBS), Royal Bank of Scotland Group (RBS), and Rabobank have been fined a total of about $3.6 billion for rigging Libor.
The European Commission fined six companies a record €1.7 billion ($2.3 billion) on Dec. 4 for manipulating rates linked to Libor.
Regulators are also investigating the $5.3 trillion-a-day foreign exchange market.
Bloomberg reported in June that traders at some banks said they shared information about their currency positions through instant messages, executed their own trades before client orders, and sought to manipulate the benchmark WM/Reuters rates, which determine what many pension funds and money managers pay for currencies.
“Libor was the beginning,” Elke König, president of BaFin, the German banking regulator, told reporters in Frankfurt in October. “Now we’re talking about foreign exchange.”
$103b -- Amount U.S. banks have allotted to cover the costs of litigation, investigations, and settlements
The total of legal expenses calculated for this story is based on the latest available data. Of the 18 banks included in the tally, 17 have assets of more than $500 billion, putting them among the largest in Europe.
Spokesmen for the 18 companies, which also include Credit Suisse (CS), HSBC (HSBC), Italy’s UniCredit (UCG:IM) and Intesa Sanpaolo (ISP:IM), Spain’s Banco Santander (SAN), and Crédit Agricole (ACA:FP) of France, declined to comment beyond disclosures already made for past and future legal expenses, or didn’t respond to requests for comment.
Christian Hamann, an analyst with Hamburger Sparkasse, a German lender, says these banks remind him of Europe’s insurers when they grappled with billions of dollars in claims in the late 1990s related to gutting buildings insulated with toxic materials.
“This is the asbestos of banks,” he says. “The insurers knew the risks, but their reserves were never enough, and they only really got a handle on it in 2004 or 2005. The banks have also underestimated their legal risks.”
Spiraling litigation costs haven’t stopped the banks’ stocks from rising. They’ve been helped by the European Central Bank’s pledge last year to help save the euro by buying the bonds of nations that accept certain conditions.
Of the 18 banks, the 17 that are publicly traded have seen a median gain of 21 percent this year through Dec. 2.
The $77 billion European legal tab is less than the $103 billion the six biggest U.S. banks had allotted as of late August to lawyers, litigation, and settlements since the financial crisis, according to data compiled by Bloomberg.
In October, JPMorgan Chase (JPM) reported its first quarterly loss under Chief Executive Officer Jamie Dimon because of surging legal expenses. Last month the bank agreed to the final terms of a $13 billion settlement over its sales of mortgage-backed securities.
http://www.businessweek.com/articles/2013-12-05/european-banks-legal-costs-climb-as-regulators-crack-down
Banks Finally Pay for Their Sins, Five Years After the Crisis By Nick Summers
http://www.businessweek.com/articles/2013-10-31/banks-finally-pay-for-their-sins-five-years-after-the-crisis
Story: Leaner Times for Wall Street Bond Traders
http://www.businessweek.com/articles/2013-12-19/wall-street-bond-traders-face-leaner-times
http://www.dinarrecaps.com/1/post/2013/12/currency-manipulation-probe-continues.html