Barclays is set to pay a substantial fine to resolve allegations that 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 US Department of Financial Services is likely to impose a penalty of at least $100m for the alleged electronic trading abuses. This follows the $485m that 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 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 close to the negotiations. But Barclays’ alleged behaviour is still considered serious given that it seems 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. The bank has taken about $13bn of litigation provisions since the crisis. Mr Staley, a former JPMorgan Chase executive, takes over in early December with an objective to resolve swiftly remaining legal issues.
Separately, the US Justice Department, DFS and other federal agencies 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.