Forex Suit Update: More Banks to Settle, Move On - Analyst Blog
A stricter regulatory stance over the alleged manipulation of foreign exchange ("forex," or “FX”) rates by almost a dozen banks has resulted in many banks pleading guilty to gain waivers along with others giving in to the pressure to settle the litigation.
In the civil lawsuit filed by law firms Scott & Scott and Hausfeld in 2013, four major banks have agreed to shell out millions of dollars in separate settlement agreements according to people familiar with the matter.
The banks include two UK-based banks – HSBC Holdings plc HSBC and Barclays PLC BCS – as well as The Goldman Sachs Group, Inc. GS and Paris-based BNP Paribas SA BNPQY.
According to sources, HSBC is expected to pay around $285 million, Barclays nearly $375 million, BNP Paribas about $200 million and Goldman approximately $130 million. The aggregate sum comes to around $990 million.
A Glimpse into the Case
In 2013, several investors including hedge funds, public pension funds, the Philadelphia city and other market participants filed a complaint accusing 12 banks of manipulating WM/Reuters rates through chat rooms, e-mail and instant messaging since Jan 2003. WM/Reuters rates are a benchmark for determining closing prices in the FX market.
The plaintiffs alleged that the banks’ manipulation of WM/Reuters rates impacted the value of financial transactions in the U.S., including foreign exchange trade. Further, the plaintiffs claimed that these negatively affected the pension and savings accounts that are dependant on global foreign exchange rates.
Follow-Up
The current settlement move comes after the banks’ claims of inadequate proof submitted by plaintiffs were dismissed by the Judge Lorna G. Schofield. The plea rejection and building stress over the lawsuit resulted in banks such as JPMorgan Chase & Co. JPM, Citigroup Inc. C, The Royal Bank of Scotland Group plc RBS, UBS Group AG UBS and Barclays pleading guilty to the U.S. Department of Justice (“DOJ”).
While JPMorgan accepted the accountability for currency rigging and paid $99.5 million in settlement of an antitrust class action in Jan 2015, the Swiss banking giant UBS admitted to breaching its Dec 2012 non-prosecution agreement (“NPA”) over manipulation of the Libor benchmark interest rate and compensated $135 million in Mar 2015.
Following suit, Bank of America Corp. BAC agreed to pay $180 million to settle similar charges in Apr 2015, although it avoided the guilty plea. This further undermined the position of other banks unwilling to surrender to the regulatory pressure.
Our Take
The latest round of settlements will gradually put a long-drawn investigation to rest and provide a clean slate to the banks. However, these are likely to impact the companies’ financials and call for more transparency and disclosure in their dealings.
Moreover, regulatory authorities are probing cases related to the heightening foreign exchange rate fixing with a heavy hand and are determined to put forward a landmark judgment to terminate such practices in the future, bring justice to the sufferers and punish the wrongdoers.
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