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

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Deutsche Bank AG Headquarters in Frankfurt
Deutsche Bank AG is seen as probably the “most impacted” with a fine of as much as 5.1 billion euros ($6.5 billion), according to Citigroup analyst, Kinner Lakhani. Photographer: Krisztian Bocsi/Bloomberg

Probes into allegations that traders rigged foreign-exchange benchmarks could cost banks as much as $41 billion to settle, Citigroup Inc. analysts said.

Deutsche Bank AG 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 could face as much as 3 billion pounds ($4.8 billion) in fines and UBS AG penalties of 4.3 billion Swiss francs ($4.6 billion), they wrote in a note first sent to clients on Oct. 3.

“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.

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. Justice Department plan 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.

Kick-starting Provisions

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.

“The discussion around a potential U.K. settlement as well as certain U.S. banks taking related provisions in their recent results suggests a kick-start towards overall FX litigation settlement,” Lakhani said by e-mail.

Citigroup is the biggest player in the $5.3 trillion-a-day foreign-exchange market, according to a Euromoney Institutional Investor Plc survey published May 9. The New York-based bank’s 16.04 percent market share topped Deutsche Bank’s 15.67 percent and Barclays’s 10.91 percent. UBS controlled 10.88 percent.

Citigroup’s potential fine in the currency manipulation investigations wasn’t mentioned in the analysts’ report, in line with bank policy. The firm is among those in talks with regulators in the U.S. and U.K. to settle probes, people with knowledge of the matter have said.

Cooperation Benefits

The Euromoney rankings are drawn from a survey of traders in the foreign-exchange markets. The 2013 results were based on 14,050 responses, representing $225 trillion of turnover, London-based Euromoney said.

U.K. authorities will probably account for 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.

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