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Citigroup Inc. (C - Analyst Report) has recently become the latest global banking giant to be subject to investigations related to foreign exchange trading (Forex). This has made bankers and investors increasingly wary of a scandal similar to the LIBOR scam.

Like other global banking behemoths such as Deutsche Bank AG (DB - Analyst Report), UBS AG (UBS - Analyst Report) and JPMorgan Chase & Co. (JPM - Analyst Report), Citigroup has promised to cooperate in the foreign exchange trading related investigations.

Citigroup declared that it was working with the U.S. and international regulatory authorities on issues related to foreign exchange trading.  At least 6 regulatory authorities around the globe, including the US Department of Justice, the European Commission and the Hong Kong Monetary Authority, are investigating the alleged manipulation of currency markets.

However, Citigroup did not reduce the range of its expected loss as a result of legal and regulatory issues. The bank’s unreserved litigation costs were $5 billion, stable from  the prior year.

Investigators are examining the possible transfer of information by traders from one bank to another through electronic medium. Further, suspicion lingers around certain traders using  information about large trade orders from customers to maneuver rates.

Manipulation of foreign exchange trade and the rigging of London Interbank Offered Rate (LIBOR) by banks have stimulated regulatory authorities to undertake stringent measures. Last week, Fannie Mae (FNMA) filed a lawsuit against 9 major banks and British Bankers Association (BBA) for their alleged role in rigging LIBOR. Earlier, Freddie Mac (FMCC) had alleged that the banks and BBA colluded together to reap profits from LIBOR manipulations from 2007 to 2010.

Investigation of the foreign exchange rate manipulation marks the latest scrutiny of financial standards that involve substantial amount of money in both personal and business transactions. With Citigroup willing to cooperate with the regulatory authorities, it appears that the bank will likely come out clean. However, the proof of any wrongdoing can tarnish the bank’s reputation and weigh on its financials.

Citigroup currently carries a Zacks Rank #3 (Hold).

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