For Immediate Release

Chicago, IL – May 22, 2015 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include the Citigroup Inc. (C), JPMorgan Chase & Co. (JPM), Royal Bank of Scotland Group plc (RBS), UBS Group AG (UBS) and Barclays PLC (BCS).

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Here are highlights from Thursday’s Analyst Blog:

Major Banks Plead Guilty in FX Market Rigging

The much anticipated settlement related to the foreign currency (‘FX”) market manipulation has been eventually announced. In aggregate, major banks will be paying nearly $6 billion to the U.S. and U.K. regulators to settle various charges.

Regulators accused Citigroup Inc. (C), JPMorgan Chase & Co. ( JPM), The Royal Bank of Scotland Group plc (RBS), UBS Group AG (UBS) and Barclays PLC (BCS) of conspiring for manipulation of the FX market. Aside from UBS Group, Citigroup's main banking subsidiary, Citicorp, and the parent companies of JPMorgan, Barclays and Royal Bank of Scotland pleaded guilty to the U.S. Department of Justice (“DOJ”) for the aforesaid charges.

Notably, UBS Group pleaded guilty for breaching its Dec 2012 non-prosecution agreement (“NPA”) over manipulation of the Libor benchmark interest rate.

Further, the Federal Reserve issued cease and desist orders against all six banks. This requires the banks to “improve their policies and procedures for oversight and controls over activities in the wholesale FX and similar types of markets.”

At a news conference in Washington the U.S. Attorney General Loretta Lynch said, "The penalty all these banks will now pay is fitting, considering the long-running and egregious nature of their anticompetitive conduct".

Penalty Amounts & Other Terms

As mentioned above, the total penalty amount stood at roughly $6 billion. But how much each of these banks has been penalized and whether it will have any impact on the current-quarter results remains a matter of concern.

Starting with the U.S. banks, Citigroup will be paying $1.27 billion (in total). Of this amount, $925 million will be paid to the DOJ for violation of the Sherman Antitrust Act. The remaining amount will be received by the Fed. Also, the company entered into an agreement to resolve certain private U.S. class-action claims for a payment of $394 million, subject to court approval.

For JPMorgan, the total fine comes to $892 million, with $550 million being paid to the DOJ and the balance to the Fed. Further, BofA agreed to pay $205 million to the Fed. Notably, the company was not penalized by the DOJ as it did not form part of actions taken by the regulator.

Now coming to the foreign banks, Barclays was hit the hardest, with a total penalty of $2.32 billion. The company’s share of fine was large compared with other banks, as many regulators were involved in resolution.

The U.S. regulators involved were the DOJ ($710 million, including $60 million for breaching NPA issued during LIBOR settlement), the Fed ($342 million), the U.S. Commodity Futures Trading Commission ($400 million) and the New York State Department of Financial Services ($485 million). Further, Barclays will be paying £284 million ($383 million) to the UK Financial Conduct Authority.

For Royal Bank of Scotland, penalty totaled $669 million, with $395 million payable to the DOJ and remaining $274 million going to the Fed. Moreover, UBS Group was fined $342 million by the Fed, while $203 million will be paid to the DOJ. Apart from this, the company was granted immunity by the DOJ from criminal fraud charges regarding ongoing probes related to misconduct in the trading of precious metals and V10 Currency Indexes.

Further, the U.S. Securities and Exchange Commission (“SEC”) granted waivers to all five banks that had pleaded guilty. This will allow the banks to continue with their securities businesses.

All the banks are fully reserved to fulfill their respective penalties. Therefore, no additional charge will be recorded over earnings in the second quarter of 2015.

Also, investors seem to have taken these penalties and guilty pleas in their stride, as resolution of allegations removed a major legal headwind for the banks. Barclays, Royal Bank of Scotland and UBS Group gained in the range of 2–4% on the NYSE. Nonetheless, shares of JPMorgan, Citigroup and BofA fell marginally.

Road Ahead

Trading in FX market guarantees significant revenues for banks at a very low risk. However, lack of oversight in the FX market helped banks to manipulate rates as early as Dec 2007 through Jan 2013.

In Nov 2014, the U.S., British and Swiss regulators had fined five major global banks $3.4 billion on similar charges. Banks which agreed to settle allegations were Citigroup, JPMorgan, Royal Bank of Scotland, HSBC Holdings plc, UBS AG and others (read more: Another Blow to Global Banks: Fined Billions for FX Manipulation ).

Despite these two major settlements, investigations are far from over. Banks continue to cooperate with still-pending probes that are being conducted by other regulatory agencies pertaining to their FX trading operations.

Additionally, guilty pleas by banks have paved the way for pension funds and investment managers, who have regular currency dealings with banks, to file lawsuits so as to recover losses on those trades. If such cases keep coming up, legal expenses and provisions will mount for banks, hampering their financials.

However, regulatory authorities investigating such rigging and business misconducts are determined to handle such cases severely. This will dissuade such practices in the future, bringing justice to sufferers and punishing the wrongdoers.

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