Investors yawned at the news Wednesday that five of the world’s biggest banks, including JPMorgan Chase & Co. and Citigroup Inc., agreed to plead guilty in a currency-rigging probe. They’re among six banks that will pay $5.8 billion in fines.
Barely more than a year ago, criminal charges against major U.S. banks were considered unthinkable, with lawyers and analysts viewing felony convictions as a death sentence and a threat to the financial system. Now, by granting waivers allowing lenders to keep operating even after a felony plea, the government has managed to punish firms while protecting them from fatal consequences.
“This is the first time you had Citigroup, JPMorgan or any U.S. bank plead guilty essentially to criminal conduct -- this is a bad day for American finance,” Mike Mayo, an analyst at CLSA Ltd., said in a televised interview with Bloomberg. “Having said that, this is more backward-looking than forward-looking.”
JPMorgan and Citigroup each slid 0.8 percent in New York trading, while Bank of America Corp., which paid $205 million in fines, fell 0.2 percent. European firms that pleaded guilty rose, with Barclays Plc climbing 3.4 percent, UBS Group AG increasing 3 percent and Royal Bank of Scotland Group Plc up 1.8 percent.
“It’s a bit weird, isn’t it?” Christopher Wheeler, a London-based analyst at Atlantic Equities LLP, said in a telephone interview. “$5.8 billion and yet everybody is shrugging their shoulders.”
Last year, the Justice Department turned up the heat on non-U.S. firms by requiring Paris-based BNP Paribas SA and Credit Suisse Group AG’s main bank unit to plead guilty to felonies. That raised questions about when and if U.S. prosecutors would go after a domestic bank.
Before Wednesday, there was little precedent of healthy U.S. lenders being convicted of crimes. Two other firms that did plead guilty to felonies -- the Bank of Credit and Commerce International in 1992 and Washington’s Riggs Bank in 2005 -- had already been wiped out.
For all the muted response to Wednesday’s news, Donaldson Capital Management LLC’s Greg Donaldson expressed concern that criminal charges may now become routine.
“Once you cross that line and admit you’ve done something bad, you open up Pandora’s box,” said Donaldson, chairman of the Evansville, Indiana-based firm that manages about $1.1 billion. “This settlement just moved the goal post.”
If convictions become too commonplace, the government may have to pursue even tougher penalties. Last year, Federal Reserve Bank of New York President William Dudley warned firms that they risk being “dramatically downsized” unless they stop breaking the law.
“Such prosecutions could represent a longer-term threat to these franchises,” Jaret Seiberg, an analyst at Guggenheim Securities, said Wednesday in a note to clients. Criminal guilty pleas “may alter the political landscape by giving more ammunition to those who want to break up the biggest banks,” he said.