Saturday, November 08, 2014

Major banks have set aside almost $7 billion for potential settlements

Major banks have set aside almost $7 billion for potential settlements with regulators investigating allegations of collusion and manipulation in foreign exchange markets, the first of which could come in Britain later this month.
Europe's largest bank HSBC (HSBA.L) on Monday was the latest bank to make provisions in its most recent earnings report, putting aside $378 million specifically for a potential settlement with Britain's Financial Conduct Authority (FCA).
HSBC is the last of six banks in talks with the FCA over a group FX settlement to report their results. The other five also set aside substantial sums for litigation provisions.
British banks Royal Bank of Scotland (RBS.L) and Barclays last week set aside $640 million and $800 million, respectively, specifically for settlements related to the global FX probe which has been running for a year.
This means the three British banks have made almost $1.8 billion provisions in their latest earnings reports specifically for FX-related issues.
The near $7 billion from eight banks, also including Deutsche Bank (DBKGn.DE) and Credit Suisse (CSGN.VX), isn't entirely for currency-related issues, although that's where the lion's share of the total is likely to be spent, analysts say.
Banks' provisions are cash earmarked to pay for costs or losses that are anticipated to occur in the future and the final amount may be more or less than the sum set aside.

However, with potential settlements still to come with the U.S. Department of Justice (DOJ) - which has shown it has the power and willingness to levy multi-billion dollar fines on banks for financial misconduct - the final bill could be much higher.
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