JPMorgan: Feds pursuing criminal forex probe

JPMorgan Chase (JPM) disclosed Monday that the New York-based global bank is in talks with the Department of Justice over a criminal investigation of its foreign exchange business.

Confirming the probe in a quarterly financial filing, the bank also said it was conducting similar talks with enforcement and regulatory authorities conducting civil investigations.

"There is no assurance that such discussions will result in settlements," the bank said.

JPMorgan also reported that reasonably possible losses from legal matters now total $5.9 billion, a $1.3 billion increase since June 30. Bank CFO Marianne Lake told financial analysts in October that JPMorgan's recent increases in legal expenses largely related to the foreign exchange probes.

Shares of JPMorgan were down fractionally at $60.50 in after-hours trading Monday. The stock closed up 40 cents at $60.88 in normal trading.

The new disclosures came as several major U.S. and overseas banks in recent days reported they are budgeting billions of dollars for potential settlements on charges they manipulated the $5.3-trillion-a-day foreign exchange trading market.

London-based banking giant HSBC (HSBC) on Monday said it had set aside $378 million for a potential settlement with Great Britain's Financial Conduct Authority. The bank is conducting "ongoing" talks with the FCA over its "systems and controls relating to one part of its spot FX trading business in London," HSBC reported.

"Although there can be no certainty that a resolution will be agreed, if one is reached, the resolution is likely to involve the payment of a significant financial penalty," HSBC said in a statement with the bank's third-quarter interim management statement.

Separately, HSBC said it had also set aside $550 million for a potential settlement with the U.S. Federal Housing Finance Authority to resolve an investigation of mortgage-backed securities that were sold to mortgage finance giants Fannie Mae and Freddie Mac.

HSBC shares closed down 1.8% at $50.10 in Monday trading after the bank reported the litigation costs as part of its third-quarter financial results.

Citigroup (C) surprised investors Thursday with news that the New York-based bank had cut its third-quarter earnings by $600 million due to an increased allowance for legal expenses.

Citigroup said the increase resulted from "rapidly evolving regulatory inquiries and investigations, including very recent communications with certain regulatory agencies related to previously disclosed matters."

British banking giant Barclays on Thursday reported it had budgeted nearly $800 million in additional legal provisions "relating to ongoing investigations into Foreign Exchange with certain regulatory authorities."

Royal Bank of Scotland set aside more than $639 million for potential conduct costs related to the foreign exchange investigations, the bank disclosed on Friday.

The banking giants are among roughly a dozen global banks whose foreign exchange trading is being investigated by the FCA and authorities and regulators in the U.S. and Europe. The Federal Reserve, the Commodity Futures Trading Commission and the Office of the Comptroller of the Currency are investigating, along with the Department of Justice.

The parallel investigations on opposite sides of the Atlantic could produce a collective settlement soon, rather than separate deals by individual banks, The Wall Street Journalreported Friday, citing several people familiar with the discussions. FCA investigators hope to conclude their investigation this year, while the U.S. probes are likely to continue into 2015, the Journal reported.

The 10 banks that collectively hold the largest share of the foreign exchange market could face as much as $14.5 billion in future costs linked to the investigations, according to a Moody's Investors Service estimate issued Monday.

The foreign exchange investigations are among several multinational examinations focused on financial benchmarks that affect trillions of dollars in personal and business transactions. Separate probes have focused on suspected manipulation of oil prices, interest rate swaps, precious metal pricing and the London Interbank Offered Rate, or Libor — used to set rates on mortgages, credit cards and loans.

The mammoth foreign exchange currency market traditionally operated with little outside oversight. The investigations center on suspected rigging of the rates for 160 world currencies that have been calculated and distributed by a joint venture of the WM Co. and Thomson Reuters.

Investigators suspect that traders at major banks conspired in efforts to nudge rates up or down, thereby boosting their trading profits. Several banks have fired or placed traders on leave since the investigations began last year.

The foreign exchange investigation has prompted legal challenges from investors. A group of financial funds and public employee pension systems is pursuing a federal class-action lawsuit filed in New York against 11 major banks, including Bank of America, Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley.

In an October legal filing, plaintiff attorneys disclosed they had held two meetings with Department of Justice officials seeking ways they could obtain records and documents from the banks without interfering with the federal investigation.