Wells Fargo Swapped Some Digits

There is at this point a standard way for a bank to rip off its foreign-exchange customers. It goes like this. A customer — a corporate client, small business, small bank, whatever — wants to use a bank for regular foreign-exchange transactions; its customers pay in euros and it wants dollars, or it has dollars and its suppliers want to be paid in euros. The bank says, sure, we will change dollars into euros for you whenever you like, and charge you 25 pips. If you want euros and we can buy them for $1.1600, we’ll sell them to you for $1.1625. The customer and the bank agree to this pricing.

Then the customer comes to the bank and says “I’d like 10 million euros please.” The bank says, sure, we’ll have them by the end of the day. At the end of the day the bank looks at the trading range of the euro. Say the euro traded as low as $1.1685 and as high as $1.1732 that day. The bank will just pick the highest price, and charge the customer that, plus the (agreed) markup. So the customer will pay $1.1732 (the high price) plus $0.0025 (the markup), or $1.1757 total, or $11,757,000 for its 10 million euros. The customer thinks the bank made $25,000 (the 25-pip markup on 10 million euros). Of course the bank didn’t actually pay the highest price. If it bought the euros at, say, $1.1711, then it made $46,000 on the trade.1 It has almost doubled its fee without telling the customer.