Forex-Rigging Fines Could Hit $41 Billion Globally: Citi

The cost for banks to settle probes into allegations traders rigged foreign-exchange benchmarks could hit as much as $41 billion, Citigroup Inc. (C) analysts said.

Deutsche Bank AG (DBK) is seen as probably the “most impacted” with a fine of as much as 5.1 billion euros ($6.5 billion), Citigroup analysts led by Kinner Lakhani said yesterday, estimating the Frankfurt-based bank’s settlements could reach 10 percent of its tangible book value, or its assets’ worth.

Using similar calculations, Barclays Plc (BARC) could face as much as 3 billion pounds ($4.8 billion) in fines and UBS AG (UBSN) penalties of 4.3 billion Swiss francs ($4.6 billion), they wrote in a note first sent to clients on Oct. 3.

Authorities around the world are scrutinizing allegations that dealers traded ahead of their clients and colluded to rig currency benchmarks. Regulators in the U.K. and U.S. could reach settlements with some banks as soon as next month, and prosecutors at the U.S. Department of Justice plans to charge one by the end of the year, people with knowledge of the matter have said.

Spokesmen for Deutsche Bank, Barclays and UBS declined to comment on the Citigroup estimates.

The Citigroup analysts made their calculations using a Sept. 26 Reuters report that the U.K. Financial Conduct Authority settlements could include fines totaling about 1.8 billion pounds. They derived their estimates for how high fines could go in other investigations from that baseline, using banks’ settlements in the London interbank offered rate manipulation cases as a guide.

Photographer: Krisztian Bocsi/Bloomberg

Deutsche Bank AG is seen as probably the “most impacted” with a fine of as much as 5.1...Read More

“Extrapolating European and, more importantly, U.S. penalties from a previous global settlement suggests to us a total potential global settlement on this key issue,” they said in the note.

Cooperation Rewards

U.K. authorities will probably account about $6.7 billion of fines across all banks, according to the Citigroup analysts. Other European investigations will account for $6.5 billion. Penalties in the U.S. cases could be about four times greater, hitting $28.2 billion.

The Citigroup analysts didn’t take into account the possible effect of banks’ collaboration with investigators. That can have a big impact on the size of the fines, lowering and even wiping out a penalty in some cases.

UBS and Barclays saw $4.3 billion worth of antitrust fines waived by European Union authorities in December in exchange for their early and full cooperation. Six others were fined 1.7 billion euros in that case, which involved rigging euro and yen interest rate derivatives.

UBS has sought leniency in exchange for handing over evidence of misconduct to U.S. antitrust investigators in the foreign-exchange probes, and was also the first to step forward to cooperate with the EU, people with knowledge of the matter have said.

To contact the reporter on this story: Richard Partington in London at rpartington@bloomberg.net

To contact the editors responsible for this story: Simone Meier at smeier@bloomberg.net Heather Smith, Edward Evans

JPMorgan posts profit as trading picks up and legal costs ease

(Reuters) - JPMorgan Chase & Co (JPM.N) reported a third-quarter profit as the biggest U.S. bank boosted revenue from trading and investment banking, and moved past the huge legal claims that pushed it into a rare loss in the same quarter last year.

The bank, confirming figures leaked earlier on an investment website, said on Tuesday it recorded net income of $5.6 billion, or $1.36 per share, for the three months ended Sept. 30, compared with a loss of $380 million a year earlier.

Analysts had expected earnings of $1.38 per share, according to Thomson Reuters I/B/E/S, and JPMorgan's shares were down 1.7 percent at $57.19 in premarket trading.

"The Corporate & Investment Bank saw strong performance in fees, maintaining a #1 position in global (investment banking) fees year to date, with particular strength in equity capital markets," Chief Executive Jamie Dimon said in a statement.

"In Markets, we saw increased activity and better performance overall, particularly in currencies and emerging markets," he said.

The quarterly report was the bank's first since Dimon, 58, underwent radiation and chemotheraphy treatment for throat cancer. The illness has raised questions about who might succeed him if he has to step down.

Dimon said on a conference call with reporters that his health prognosis was "excellent."

"I feel good and I'm happy the treatments are over."

The bank was hit last year by an after-tax expense of $7.2 billion to settle government allegations of wrongdoing related to mortgage instruments before the financial crisis. The latest results included a legal expense of $1 billion after tax.

However, the bank said it expected total adjusted expenses for 2014 to be above the $58 billion, excluding legal costs, that it had forecast. Costs totaled $59 billion in 2013.

Revenue from fixed-income, currency and commodity trading rose 2.1 percent to $3.51 billion in the latest quarter compared with a year earlier, and was also slightly higher than in the preceding quarter.

Market activity picked up in September, largely due to the European Central Bank's efforts to stimulate growth and a batch of data suggesting the U.S. economy was strengthening.

The surprise exit of superstar Bill Gross from bond trading giant Pimco also spurred bond market activity in late-September.

ANOTHER TECHNICAL EMBARRASSMENT

"Growth is modest. The headline numbers have come out slightly below expectations, but the model of stability is there, and that's ultimately what you want from a bank," said Simon Maughan, head of research at financial analysis firm OTAS Technologies in London.

The bank did not provide a figure for costs related to an attack on it computers that was discovered in August and exposed the names and contact information of some 76 million households and seven million small businesses.

JPMorgan suffered another technical embarrassment on Tuesday when its results appeared on website shareholder.com hours ahead of their scheduled release time.

Bank spokesman Joe Evangelisti acknowledged that there had been an "operational error" at shareholder.com, a Nasdaq OMX-owned website that hosts investor relations information for the bank, but offered no further explanation.

The bank's total investment banking revenue rose 2 percent to $1.54 billion, driven by higher advisory fees. But net income from mortgage banking fell 38 percent $439 million.

Mortgage lending by U.S. banks has been shrinking as fewer homeowners refinance. JPMorgan has also been backing away from making home loans to less creditworthy borrowers because of doubts about its ability to recover money in foreclosures.

JPMorgan was the first of three big U.S. banks reporting on Tuesday.

Citigroup Inc (C.N), the No. 3 bank by assets, reported a 13 percent rise in adjusted net profit.

Wells Fargo & Co (WFC.N), ranked No. 4, reported a 1.7 percent increase in net earnings.

Bank of America Corp (BAC.N), the second-biggest U.S. bank, will report on Wednesday.

(Additional reporting by Steve Slater in London; Editing by Ted Kerr)