There seems to be no end to probes and litigations regarding the business conduct of large global banks. In the latest quarterly regulatory filing, JPMorgan Chase & Co. (JPM) revealed that regulators across the globe are conducting investigations into its foreign-exchange (FX) trading-related operations.
The probes are mainly focused on JPMorgan’s spot FX trading activities and the corresponding controls in place to offer these services. The agencies involved in the probe include the U.S. banking regulators, the Commodity Futures Trading Commission (CFTC), the U.K. Financial Conduct Authority (:FCA) and other foreign government authorities.
JPMorgan, while cooperating with the regulators regarding the investigation, is also holding discussions to settle the FX probe. However, it is too early to speculate about the probability of any settlement. The talks may not materialize into anything concrete.
Apart from JPMorgan, several other major global banks under the scanner for alleged FX manipulation. Last week, Citigroup Inc. (C) restated its third-quarter 2014 earnings following the ongoing FX inquiries and investigations. The company is considering additional legal charges worth $600 million, with $300 to $400 million for settling FX manipulation probe. (Read More: Citigroup Restates Q3 Earnings on $600M Legal Charges).
Further, HSBC Holdings plc (HSBC), Barclays PLC (BCS), The Royal Bank of Scotland Group plc and UBS AG, among others, disclosed additional legal reserves related to FX probes during their latest earnings releases.
Regulators across the globe are dealing seriously with the allegations of banks having manipulated WM/Reuters rates used for determining foreign exchange prices. WM/Reuters rates are published hourly for 160 currencies and half-hourly for the 21 most-traded ones. Hence, it is a widely accepted standard, the rigging of which will necessarily undermine the importance of the rates and give rise to negative financial consequences.
Concurrently, JPMorgan raised its probable losses from legal matters to $5.9 billion, a $1.3 billion increase from Jun 30, 2014 level. Notably, in the third-quarter 2014 earnings release, JPMorgan’s net income was hit by $1.0 billion of legal expenses, with CFO Marianne Lake stating that this rise was mainly related to FX probes.
Currently, JPMorgan carries a Zacks Rank #3 (Hold).
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