The UK headquarters of HSBC at Canary Wharf in London. HSBC yesterday was the latest bank to make provisions in its most recent earnings report, putting aside $378mn specifically for a potential settlement with Britain’s Financial Conduct Authority.
Reuters
London
Major banks have set aside almost $7bn for potential settlements with regulators investigating allegations of collusion and manipulation in foreign exchange markets, the first of which could come in Britain later this month.
Europe’s largest bank HSBC yesterday was the latest bank to make provisions in its most recent earnings report, putting aside $378mn specifically for a potential settlement with Britain’s Financial Conduct Authority (FCA).
HSBC is the last of six banks in talks with the FCA over a group FX settlement to report their results. The other five also set aside substantial sums for litigation provisions.
British banks Royal Bank of Scotland and Barclays last week set aside $640mn and $800mn, respectively, specifically for settlements related to the global FX probe which has been running for a year.
This means the three British banks have made almost $1.8bn provisions in their latest earnings reports specifically for FX-related issues.
The near $7bn from eight banks, also including Deutsche Bank and Credit Suisse, isn’t entirely for currency-related issues, although that’s where the lion’s share of the total is likely to be spent, analysts say.
Banks’ provisions are cash earmarked to pay for costs or losses that are anticipated to occur in the future and the final amount may be more or less than the sum set aside.
However, with potential settlements still to come with the US Department of Justice (DoJ) — which has shown it has the power and willingness to levy multi-billion dollar fines on banks for financial misconduct — the final bill could be much higher.
Around ten other regulators around the world are also investigating.
The FCA’s talks with six banks are at an advanced stage and a settlement for between 1.5 and £2bn ($2.4-$3.2bn) could come later this month.
The six are RBS, Barclays, HSBC, Switzerland’s UBS, and US titans JP Morgan and Citi. Despite its position as the second biggest currency market bank in the world, Deutsche isn’t part of these collective talks.
This settlement is likely to be based on banks acknowledging lax internal compliance, oversight failures and market conduct breaches by individual employees, but not deliberate manipulation of the $5tn-a-day market.
On Monday, HSBC said its “detailed” talks with the FCA centre on systems and controls relating to one part of its spot FX trading business in London.
UBS ring-fenced the most of any single bank in the third quarter, its $1.9bn almost double the provisions made by the next in line Deutsche Bank with $1.1bn and JP Morgan with $1bn.
All three declined to reveal in their recent earnings reports how much of these provisions were specifically for foreign exchange.
Citi added a further $600mn for legal costs, while Credit Suisse said $400mn would be kept back for future litigation. No bank has been accused of wrongdoing, but several are cooperating with UK, US and other authorities around the world in their investigations into the allegations of collusion and price manipulation.
Settlements with US regulators are expected to be much more costly.
Earlier this year, French bank BNP Paribas paid the DoJ a record $8.9bn fine for violating US sanctions on Sudan, Libya and Cuba between 2002 and 2012.
Estimates on how much banks will be fined in total for FX vary wildly. Earlier this year, banking research firm Autonomous put the worldwide total at around $35bn.
This would dwarf the $6bn paid so far by 10 financial firms to settle the international investigation into the manipulation of Libor interest rates.
