Barclays faces another heavy forex fine

Gina Chon, Martin Arnold and Kadhim Shubber
Adam Jeffery | CNBC

Barclays is set to pay at least another $100m to resolve allegations it abused foreign exchange markets through its electronic trading platform by next month, presenting an early test for the bank's incoming chief Jes Staley.

The New York Department of Financial Services is likely to impose a smaller penalty for the alleged electronic trading abuses than the $485m the bank agreed to pay New York's banking regulator in May over manipulation of forex spot trading, people familiar with the case said.

The looming penalty comes as US agencies' far-reaching forex probe also pursues fresh claims against Deutsche Bank.

Moody's, the rating agency, calculated this week that banks' litigation costs since the 2008 financial crisis have reached almost $219bn, with the bulk of the burden shouldered by US banks, led by Bank of America with provisions of about $70bn.

The challenges ahead for Barclays' new CEO

The pain is now shifting to their European counterparts, Moody's said. "We think that more is still to come," said David Fanger, senior vice-president, who pointed to Deutsche Bank and RBS as being particularly exposed to foreign exchange and US mortgage litigation costs respectively. "At this point probably European banks are more vulnerable because US banks have [already] taken more of the provisions."

The latest fine facing Barclays is smaller than May's penalty because there is a lower volume of trades at issue, according to people privy to the negotiations. But Barclays' behaviour is still considered serious given that it is alleged that the bank intentionally sought to gain unfair advantages over clients and counterparties through its forex trading platform, they said.

One focus of the DFS probe has been Barclays' system for backing out of trades at the last minute if the market moves against the bank, known as "last look," the people said.

Barclays declined to comment.

A settlement with DFS would clear up one of the numerous legal issues still looming over the bank, which has taken about $13bn of litigation provisions since the crisis.

Jes Staley
Barclays appoints Jes Staley as new CEO

Mr Staley, the former JPMorgan Chase executive, is due to take over as chief executive in early December and his chairman John McFarlane has set an objective to resolve the remaining legal issues as quickly as possible.

Barclays is still being investigated for other possible misconduct, including payments to Qatari investors in its 2008 rights issue and potential manipulation of precious metals markets.

Separately, the US Justice Department, other federal agencies and DFS have found evidence that Deutsche made money by using its knowledge of client forex orders in illegal front-running, people familiar with that case said.

The German lender faces a separate probe by DFS into its electronic trading platform, known as the Autobahn, and there is also evidence the bank intentionally set up algorithms to rig the currency markets, these people said.

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It is possible that the investigations of forex spot trading and the electronic trading platforms could be combined into one settlement, which could come next year.

How can Barclays improve?

The forex probe is one of numerous investigations into Deutsche Bank by US authorities, who are also looking into whether the bank violated Russian sanctions and anti-money laundering laws through stock trades conducted for Russian clients.

Deutsche declined to comment. The regulatory probes it faces are one of the issues that the bank's new chief executive John Cryan is grappling with after unveiling a drastic restructuring plan last month.

The German lender is one of several banks that have not reached a settlement yet with US authorities over a broad probe of Wall Street firms accused of manipulating the forex markets. In May, six banks agreed to pay more than $5.6bn to resolve allegations that they rigged the $5.3tn currency markets.

Barclays was part of that settlement and agreed to pay $2.4bn to DFS, the Justice Department and other agencies. But the electronic trading platform aspect of the investigation was carved out because DFS needed more time for its probe.

The other banks that settled with the DoJ, the Federal Reserve and other agencies include Citigroup, JPMorgan Chase, Royal Bank of Scotland, Bank of America and UBS.

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