U.K. Banks’ FX-Rigging Charges Hit $1.7 Billion in Quarter

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Royal Bank of Scotland Group Plc brings the amount British banks have set aside in the first quarter to cover the cost of settling probes of whether traders manipulated key currency benchmarks to more than $1.7 billion.

The Edinburgh-based lender took a 334 million-pound charge ($516 million) for alleged foreign-exchange market rigging, adding to an 800 million-pound provision taken by Barclays Plc on Wednesday. RBS said it’s in “advanced” talks with the U.S. Department of Justice to settle the probe.

RBS, Barclays and HSBC Holdings Plc have made provisions totaling about $6 billion since authorities began a global probe into the rigging of currency markets two years ago. The DOJ is seeking about $1 billion each from global banks being investigated, according to people familiar with the matter. RBS Chief Executive Officer Ross McEwan told reporters on Thursday he expects the fine to be less than that.

“Barclays’s problems are more serious because they didn’t join the group currency settlement last year and are regulated in New York, whereas RBS isn’t,” said Sandy Chen, an analyst at Cenkos Securities Plc in London. “It looks like regulatory charges will be an ongoing burden.”

RBS shares fell 4 percent at 12:31 p.m. in London. Barclays slipped 1.3 percent, while HSBC decreased 0.2 percent.

Legal Bills

Rising legal bills and restructuring costs are undermining British banks’ efforts to shore up earnings. RBS on Thursday reported a first-quarter net loss of 446 million pounds after a profit of 1.2 billion pounds in the year-ago period, missing analyst estimates. The lender set aside a further 856 million pounds in conduct and litigation charges in the period.

RBS has now set aside about 1 billion pounds to cover the cost of the foreign-exchange investigation.

Barclays on Wednesday reported a pretax profit including provisions of 1.3 billion pounds in the first quarter, down from

1.8 billion pounds a year earlier. The bank has set aside about

2.1 billion pounds to cover a currency-rigging settlement.

HSBC, which is scheduled to report earnings on Tuesday, set aside $1.2 billion to cover the cost of the probe in 2014.

Authorities around the world are investigating the $5.3 trillion-a-day currency market. Six banks including RBS agreed to pay $4.3 billion in November in an initial round of settlements with some authorities. Criminal and antitrust authorities continue to investigate the allegations.

‘Conduct Hurdles’

The Justice Department is pressing to resolve the probe with settlements that include guilty pleas from some of the institutions and penalties of roughly $1 billion for each bank, with some being asked for more and some for less, people with knowledge of the negotiations have said. The government also has said it’s preparing cases against individuals.

“It will be out in the next couple of months, we’re still in final discussions with the DOJ,” McEwan said. “There are still many conduct and litigation hurdles looming.”

RBS, Britain’s largest government-owned bank, paid $634 million to two regulators as part of last year’s settlement. HSBC was fined $618 million to close its role at that time.

Barclays, which wasn’t part of the November settlement, is now in “fluid, real-time dialogs” with regulators over reaching a deal, Finance Director Tushar Morzaria said.

“We are working as hard as we can to expeditiously resolve this matter,” Morzaria said, without elaborating.

(An earlier version of the story was corrected to clarify the currency in the third paragraph.)

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